Investors Met With Slowing Returns on Capital At Morgan Advanced Materials (LON:MGAM)

Yahoo

30-05-2025

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 briefly looking over the numbers, we don't think Morgan Advanced Materials (LON:MGAM) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Morgan Advanced Materials, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = UK£126m ÷ (UK£1.1b - UK£263m) (Based on the trailing twelve months to December 2024).
So, Morgan Advanced Materials has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Machinery industry average of 14%.
View our latest analysis for Morgan Advanced Materials
Above you can see how the current ROCE for Morgan Advanced Materials compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Morgan Advanced Materials .
There hasn't been much to report for Morgan Advanced Materials' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Morgan Advanced Materials to be a multi-bagger going forward. This probably explains why Morgan Advanced Materials is paying out 41% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
In a nutshell, Morgan Advanced Materials has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 9.9% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing, we've spotted 3 warning signs facing Morgan Advanced Materials that you might find interesting.
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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