If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Monster Beverage's (NASDAQ:MNST) trend of ROCE, we really liked what we saw.

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 Monster Beverage:

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

0.30 = US$2.0b ÷ (US$8.1b - US$1.2b) (Based on the trailing twelve months to September 2024).

Therefore, Monster Beverage has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Beverage industry average of 16%.

View our latest analysis for Monster Beverage

Above you can see how the current ROCE for Monster Beverage 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 analyst report for Monster Beverage .

The Trend Of ROCE

Monster Beverage deserves to be commended in regards to it's returns. The company has consistently earned 30% for the last five years, and the capital employed within the business has risen 54% in that time. Now considering ROCE is an attractive 30%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Monster Beverage can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Monster Beverage has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And given the stock has only risen 33% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Monster Beverage is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for MNST that compares the share price and estimated value.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.