Investors Eye Mistras Group’s (NYSE) Growing Return on Capital — Will It Last?

Investors Eye Mistras Group’s (NYSE) Growing Return on Capital — Will It Last?

When searching for a solid investment opportunity, there are a few key trends that can help identify companies with the potential for significant growth. One important indicator is a rising return on capital employed (ROCE) and an expanding base of capital. This combination shows that a company is effectively reinvesting its profits and generating higher returns. In the case of Mistras Group (NYSE), the numbers suggest that it’s heading in the right direction.

Understanding Return on Capital Employed (ROCE)

First things first, if you’re not familiar with ROCE, let’s break it down. ROCE measures how much pre-tax profit a company generates from the capital it has invested in its business. Essentially, it's a good way to see how efficiently a company is using its money to make more money.

Here’s how the ROCE calculation works for Mistras Group:

ROCE = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

For Mistras Group, using data from the twelve months leading up to June 2024, this would look like:

0.091 = $39 million ÷ ($548 million - $115 million)

So, Mistras Group’s ROCE currently sits at 9.1%. While this isn’t necessarily a poor number, it does fall short of the industry average for Professional Services, which is 14%. This indicates that while Mistras Group is making money on its investments, it's doing so at a rate lower than its peers. However, there's more to this story than just the surface numbers.

A Promising Trend for Returns

When we look at Mistras Group’s ROCE over the past five years, things start to get more interesting. Over that period, their return on capital has increased by a significant 108%. The company is now earning about $0.09 for every dollar of capital employed. What’s more impressive is that Mistras Group has achieved this improvement while reducing the amount of capital it’s using by 30%.

This suggests that Mistras Group is getting smarter and more efficient with its resources. Essentially, the company is managing to do more with less, which could be a sign of better management practices or improved operations. However, it’s worth noting that the company is shrinking in terms of its total assets. So, while it's becoming more efficient, it’s also running a leaner operation.

What Does This Mean for Investors?

In simple terms, Mistras Group is becoming more efficient in how it uses its capital, and that's a positive sign for potential investors. While the company’s ROCE isn’t the highest in the industry, the fact that it has grown so significantly in recent years is a reason for optimism.

However, it’s also important to recognize that the company’s stock has declined by 15% over the past five years. This drop might seem concerning at first glance, but it could present an opportunity for investors. If Mistras Group’s operational efficiency continues to improve, and other metrics such as valuation look favorable, this stock could be a strong candidate for further research and potential investment.

What's Next for Mistras Group?

If Mistras Group continues its current trend, it could be well on its way to becoming a leaner, more profitable business. However, investors should always be cautious when relying solely on historical data. While the company’s past performance is encouraging, the future is always uncertain. Analysts are keeping an eye on Mistras Group’s next moves, and if you’re interested in the company, you should consider doing the same.

For those who want a deeper look, you can explore analyst forecasts for Mistras Group to get a sense of what the experts think will happen next. Additionally, investors should always keep an eye out for any warning signs—and Mistras Group has a couple of them. It’s essential to weigh these risks against the company’s potential upside before making any investment decisions.

Final Thoughts

In summary, Mistras Group has shown some promising trends in its return on capital employed. The company has significantly improved its efficiency, generating higher returns from a smaller capital base. While its overall ROCE is still below the industry average, the growth in this metric is encouraging.

For investors looking for a potential bargain, the stock’s 15% decline over the past five years could be an opportunity—especially if the company continues to improve its operations and drive better returns. Of course, like any investment, it’s crucial to do thorough research, considering both the risks and the potential rewards.

If you want to stay informed on Mistras Group or learn more about other companies with strong balance sheets and good returns on equity, there are plenty of resources available to continue your research.