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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Mohawk Industries (NYSE:MHK), we don't think it's current trends fit the mold of a multi-bagger.
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Return On Capital Employed (ROCE): What Is It?
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 Mohawk Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.08 = US$807m ÷ (US$13b - US$2.7b) (Based on the trailing twelve months to December 2024).
Therefore, Mohawk Industries has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 13%.
View our latest analysis for Mohawk Industries
Above you can see how the current ROCE for Mohawk Industries 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 analyst report for Mohawk Industries .
How Are Returns Trending?
There hasn't been much to report for Mohawk Industries' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Mohawk Industries doesn't end up being a multi-bagger in a few years time.
Our Take On Mohawk Industries' ROCE
We can conclude that in regards to Mohawk Industries' returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 35% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
If you'd like to know about the risks facing Mohawk Industries, we've discovered 1 warning sign that you should be aware of.