Investors Will Want Mistras Group's (NYSE:MG) Growth In ROCE To Persist

Simply Wall St · 10/18 10:59

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Mistras Group (NYSE:MG) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mistras Group is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.091 = US$39m ÷ (US$548m - US$115m) (Based on the trailing twelve months to June 2024).

So, Mistras Group has an ROCE of 9.1%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 14%.

See our latest analysis for Mistras Group

roce
NYSE:MG Return on Capital Employed October 18th 2024

In the above chart we have measured Mistras Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mistras Group .

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Mistras Group. The figures show that over the last five years, returns on capital have grown by 108%. The company is now earning US$0.09 per dollar of capital employed. In regards to capital employed, Mistras Group appears to been achieving more with less, since the business is using 30% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From Mistras Group's ROCE

In a nutshell, we're pleased to see that Mistras Group has been able to generate higher returns from less capital. Given the stock has declined 15% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Mistras Group, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.