Yahoo Finance MSA Safety (NYSE:MSA) Has Some Way To Go To Become A Multi-Bagger
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at MSA Safety's (NYSE:MSA) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on MSA Safety is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$313m ÷ (US$2.4b - US$346m) (Based on the trailing twelve months to December 2022).
Thus, MSA Safety has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Commercial Services industry.
View our latest analysis for MSA Safety
Above you can see how the current ROCE for MSA Safety compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MSA Safety.
How Are Returns Trending?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 46% in that time. 15% is a pretty standard return, and it provides some comfort knowing that MSA Safety has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
What We Can Learn From MSA Safety's ROCE
In the end, MSA Safety has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 58% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
MSA Safety does have some risks though, and we've spotted 2 warning signs for MSA Safety that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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