If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So, when we ran our eye over National Beverage's (NASDAQ:FIZZ) trend of ROCE, we really liked what we saw.

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 National Beverage is:

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

0.40 = US$211m ÷ (US$673m - US$143m) (Based on the trailing twelve months to October 2023).

So, National Beverage has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Beverage industry average of 15%.

In the above chart we have measured National Beverage'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.

What Can We Tell From National Beverage's ROCE Trend?

It's hard not to be impressed by National Beverage's returns on capital. The company has employed 21% more capital in the last five years, and the returns on that capital have remained stable at 40%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If National Beverage can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In short, we'd argue National Beverage has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 55% return if they held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing National Beverage, we've discovered 1 warning sign that you should be aware of.

National Beverage is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.