Investors want Mistras Group’s (NYSE:MG) ROCE growth to continue

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. Firstly, we want to see something proven return on capital employed (ROCE) increases, and secondly, it grows base of the capital employed. Ultimately, this shows that this is a company that reinvests profits at increasing returns. In this sense: Mistras Group (NYSE:MG) looks quite promising in terms of its return on capital trends.

What is Return on Capital Employed (ROCE)?

Just to clarify in case you’re not sure, ROCE is a measure used to evaluate how much pre-tax income (as a percentage) a company earns from the capital invested in its business. The formula for this calculation for Mistras Group is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.091 = $39 million ÷ ($548 million – $115 million) (Based on the last twelve months ended June 2024).

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

Check out our latest analysis for Mistras Group

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

How do returns develop?

You’d be hard-pressed not to be impressed with Mistras Group’s ROCE trend. The figures show that return on capital has increased by 108% over the last five years. The company now earns $0.09 per dollar of capital employed. In terms of capital employed, Mistras Group appears to be doing more with less, as the company requires 30% less capital to operate. If this trend continues, the company may become more efficient, but total assets will shrink.

What we can learn from Mistras Group’s ROCE

In short: We are pleased that Mistras Group was able to achieve higher returns with less capital. Given that the stock is down 15% over the last five years, this could be a good investment if the valuation and other metrics are also attractive. With this in mind, we believe the promising trends warrant further investigation into this stock.

If you would like to research Mistras Group further, you may be interested in learning more 2 warning signs That’s what our analysis found.

If you want to look for solid companies with great earnings, check this out 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 does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.