Investors Encounter Reduced Returns on Capital at Monadelphous Group (ASX:MND)

April 08, 2025 10:31 AM AEST | By Team Kalkine Media

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Investors Encounter Reduced Returns on Capital at Monadelphous Group (ASX:MND) — Image source: Shutterstock

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Highlights

Monadelphous Group's ROCE remains steady at 17%.

Lack of reinvestment signals a maturity phase.

Share price up by 61% over five years despite flat growth.

For those eyeing potential multi-baggers, it's essential to observe specific financial indicators. One such metric is the Return on Capital Employed (ROCE), which can show us how efficiently a company is using its capital to generate profits. A promising company should demonstrate both a growing ROCE and an increase in capital employed, key traits of a business reinvesting in itself for long-term growth.

When examining Monadelphous Group (ASX:MND), we noted its ROCE standing at 17%, which aligns with the industry average. This is calculated by dividing Earnings Before Interest and Tax (EBIT) by the difference between Total Assets and Current Liabilities. For Monadelphous, that's AU$96m ÷ (AU$877m - AU$324m) based on the trailing twelve months to December 2024.

Over the last five years, both the ROCE and the capital employed for Monadelphous Group have remained relatively stable, indicating a plateau in growth and reinvestment. This trend might suggest that Monadelphous has moved beyond its growth phase. As a result, the company has been returning 89% of its earnings to shareholders, typical behavior for a mature company with stable earnings yet limited reinvestment opportunities.

Interestingly, despite the lack of reinvestment, Monadelphous Group's stock has appreciated by 61% over the past five years. This may point to market expectations of improvement in the company's financial metrics. However, with the current trends persisting, expectations for Monadelphous Group to become a future multi-bagger might be cautious.

It's also worth noting certain risks associated with Monadelphous Group. The company has been flagged with a warning sign that prospective investors might want to explore further.

While Monadelphous Group may not provide the highest returns based on current metrics, there are other opportunities in the market.

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