In This Article:
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Mitchells & Butlers (LON:MAB) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Mitchells & Butlers is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = UK£288m ÷ (UK£4.8b - UK£674m) (Based on the trailing twelve months to April 2024).
Thus, Mitchells & Butlers has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Hospitality industry average of 7.7%.
Check out our latest analysis for Mitchells & Butlers
Above you can see how the current ROCE for Mitchells & Butlers compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mitchells & Butlers .
What Can We Tell From Mitchells & Butlers' ROCE Trend?
Over the past five years, Mitchells & Butlers' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Mitchells & Butlers in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
What We Can Learn From Mitchells & Butlers' ROCE
We can conclude that in regards to Mitchells & Butlers' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Mitchells & Butlers has the makings of a multi-bagger.
One more thing: We've identified 2 warning signs with Mitchells & Butlers (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.