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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Monster Beverage's (NASDAQ:MNST) trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Monster Beverage, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.31 = US$2.1b ÷ (US$7.7b - US$1.1b) (Based on the trailing twelve months to December 2024).
So, Monster Beverage has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.
View our latest analysis for Monster Beverage
In the above chart we have measured Monster Beverage'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 Monster Beverage .
The Trend Of ROCE
It's hard not to be impressed by Monster Beverage's returns on capital. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 31%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
In Conclusion...
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching Monster Beverage, you might be interested to know about the 1 warning sign that our analysis has discovered.