To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Marco Polo Marine (SGX:5LY) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for Marco Polo Marine:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.082 = S$14m ÷ (S$197m - S$30m) (Based on the trailing twelve months to March 2023).
So, Marco Polo Marine has an ROCE of 8.2%. On its own, that's a low figure but it's around the 7.1% average generated by the Shipping industry.
View our latest analysis for Marco Polo Marine
In the above chart we have measured Marco Polo Marine's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Marco Polo Marine here for free.
How Are Returns Trending?
We're delighted to see that Marco Polo Marine is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 8.2% which is a sight for sore eyes. In addition to that, Marco Polo Marine is employing 45% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Marco Polo Marine's ROCE
In summary, it's great to see that Marco Polo Marine has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 84% return over the last five years. In light of that, we think it's worth looking further into this stock because if Marco Polo Marine can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 3 warning signs facing Marco Polo Marine that you might find interesting.