Yahoo Finance Mission Produce (NASDAQ:AVO) May Have Issues Allocating Its Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Mission Produce (NASDAQ:AVO), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What is it?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mission Produce is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = US$35m ÷ (US$881m - US$115m) (Based on the trailing twelve months to January 2022).
Therefore, Mission Produce has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.3%.
View our latest analysis for Mission Produce
In the above chart we have measured Mission Produce's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
In terms of Mission Produce's historical ROCE movements, the trend isn't fantastic. Over the last three years, returns on capital have decreased to 4.6% from 7.3% three years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
In Conclusion...
While returns have fallen for Mission Produce in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 37% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
Mission Produce could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.
While Mission Produce isn't earning the highest return, check out this free list of companies that are 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.
