Investors will want MasTec’s ROCE growth (NYSE: MTZ) to persist
What trends should we look for if we are to identify stocks that can multiply in value over the long term? First, we will want to see a to recover on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. So when we looked MasTec (NYSE: MTZ) and its trend of ROCE, we really liked what we saw.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. Analysts use this formula to calculate it for MasTec:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.12 = US $ 507 million ÷ (US $ 5.9 billion – US $ 1.6 billion) (Based on the last twelve months up to June 2021).
So, MasTec has a ROCE of 12%. In absolute terms, this is a satisfactory performance, but compared to the construction industry average of 9.7%, it is much better.
Check out our latest review for MasTec
Above you can see how MasTec’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you like, you can view analyst forecasts covering MasTec here for free.
The ROCE trend
The trends that we have noticed at MasTec are rather reassuring. Data shows that returns on capital have increased dramatically over the past five years to reach 12%. Basically the business is making more per dollar of capital invested and on top of that 89% more capital is also being used now. So we’re very inspired by what we see at MasTec through its ability to reinvest capital profitably.
The bottom line
In summary, it is great to see that MasTec can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought after multi-baggers. And a remarkable 194% total return over the past five years tells us that investors are expecting more good things in the future. Therefore, we believe it would be worth checking whether these trends will continue.
One more thing to note, we have identified 1 warning sign with MasTec and understanding this should be part of your investment process.
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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