If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Hawkins' (NASDAQ:HWKN) look very promising so lets take a look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Hawkins, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$96m ÷ (US$575m - US$94m) (Based on the trailing twelve months to October 2023).
So, Hawkins has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.
View our latest analysis for Hawkins
In the above chart we have measured Hawkins' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from Hawkins. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Hawkins' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Hawkins has. And a remarkable 252% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
While Hawkins looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HWKN is currently trading for a fair price.
Hawkins is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
