If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Martinrea International's (TSE:MRE) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Martinrea International:

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

0.11 = CA$301m ÷ (CA$4.1b - CA$1.3b) (Based on the trailing twelve months to June 2024).

So, Martinrea International has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Auto Components industry average of 10%.

View our latest analysis for Martinrea International

In the above chart we have measured Martinrea International'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 analyst report for Martinrea International .

So How Is Martinrea International's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 24% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Martinrea International has proven its ability to continually reinvest at respectable rates of return. In light of this, the stock has only gained 3.4% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Like most companies, Martinrea International does come with some risks, and we've found 1 warning sign that you should be aware of.