To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Having said that, from a first glance at Fresh Del Monte Produce (NYSE:FDP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for Fresh Del Monte Produce:

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

0.03 = US$83m ÷ (US$3.3b - US$555m) (Based on the trailing twelve months to January 2021).

Therefore, Fresh Del Monte Produce has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Food industry average of 8.3%.

Check out our latest analysis for Fresh Del Monte Produce

Above you can see how the current ROCE for Fresh Del Monte Produce compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at Fresh Del Monte Produce, we didn't gain much confidence. Around five years ago the returns on capital were 7.2%, but since then they've fallen to 3.0%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

Our Take On Fresh Del Monte Produce's ROCE

In summary, Fresh Del Monte Produce is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 23% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.