We like Mueller Industries (NYSE:MLI) returns and here’s how they’re shaping up
Did you know there are some financial metrics that can give clues to a potential multibagger? A common approach is to try and find a company with returns on capital employed (ROCE), which are increasing, combined with a growing quantity of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. And given that, the trends we’re seeing Mueller Industries (NYSE:MLI) are looking very promising, so let’s take a look.
Return on Capital Employed (ROCE): What is it?
For those unsure what ROCE is, it measures the amount of pre-tax profit a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Mueller Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.45 = $603M ÷ ($1.7B – $382M) (Based on the last twelve months ended December 2021).
Therefore, Mueller Industries has a ROCE of 45%. In absolute terms, that’s a great return, even better than the engineering industry average of 10%.
Check out our latest analysis for Mueller Industries
Historical performance is a good place to start when researching a stock. Above you can see Mueller Industries’ ROCE compared to past returns. If you’re interested in further investigating Mueller Industries’ past, check this out free Chart of past earnings, earnings and cash flows.
What the ROCE trend can tell us
Mueller Industries’ ROCE growth is pretty impressive. The numbers show that ROCE has grown 246% over the last five years with roughly the same capital employed. Basically, the company is generating higher returns from the same amount of capital, and this is evidence that there are improvements in the company’s efficiency. Things are looking good on that front, so it’s worth checking out what management has said about future growth plans.
The final result
As mentioned above, Mueller Industries appears to be getting better at generating returns as capital employed has remained flat but earnings (before interest and taxes) have increased. And with a respectable 72% awarded to those who’ve held the stock over the past five years, one could argue that these developments are starting to get the attention they deserve. So we think it’s worth checking to see if these trends will continue.
On a separate note we noted 1 Mueller Industries warning label You will probably want to know.
Mueller Industries isn’t the only stock producing strong returns. If you want to see more check out ours free List of companies that generate high returns on equity with solid fundamentals.
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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using 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 goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.