If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends to look out for. First, we want to see a proven one yield on capital employed (ROCE) which is increasing, and secondly, growing base of the invested capital. Ultimately, this shows that it is a company that reinvests profits at increasingly higher returns. So on that note, Mistras Group (NYSE:MG) looks promising when it comes to return on capital trends.

What is return on capital employed (ROCE)?

To be clear, ROCE is a measure to evaluate how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mistras Group is:

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

0.091 = US$39m ÷ (US$548m – US$115m) (Based on the last twelve months to June 2024).

So, Mistras Group has a ROCE of 9.1%. Ultimately, that’s a low return and it performs below the professional services industry average of 14%.

See our latest analysis for Mistras Group

In the chart above, we compared Mistras Group’s prior ROCE to its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, check out our free analyst report for Mistras Group.

How are returns trending?

It would be hard not to be impressed by the ROCE trend at Mistras Group. The figures show that returns on capital have increased by 108% over the past five years. The company now earns $0.09 per dollar of invested capital. In terms of invested capital, Mistras Group appears to be achieving more with less, as the company uses 30% less capital to run its operations. If this trend continues, the company may become more efficient, but it will shrink in terms of total assets.

What we can learn from Mistras Group’s ROCE

In short, we are happy to see that Mistras Group has been able to generate higher returns with less capital. Considering the stock is down 15% over the past five years, this could be a good investment if the valuation and other metrics are also attractive. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you would like to research Mistras Group further, you may be interested in the 2 warning signs that our analysis has discovered.

If you want to look for solid companies with great earnings, take a look here free list of companies with good balance sheets and impressive returns on equity.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.