In This Article:
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So while MONY Group (LON:MONY) has a high ROCE right now, lets see what we can decipher from how returns are changing.
Return On Capital Employed (ROCE): What Is It?
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 MONY Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.39 = UK£102m ÷ (UK£413m - UK£149m) (Based on the trailing twelve months to June 2024).
Therefore, MONY Group has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 25% earned by companies in a similar industry.
See our latest analysis for MONY Group
In the above chart we have measured MONY Group'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 MONY Group for free.
How Are Returns Trending?
When we looked at the ROCE trend at MONY Group, we didn't gain much confidence. To be more specific, while the ROCE is still high, it's fallen from 56% where it was five years ago. However it looks like MONY Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
Bringing it all together, while we're somewhat encouraged by MONY Group's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think MONY Group has the makings of a multi-bagger.
If you're still interested in MONY Group it's worth checking out our FREE intrinsic value approximation for MONY to see if it's trading at an attractive price in other respects.