To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of Meta Platforms (NASDAQ:META) looks attractive right now, so lets see what the trend of returns can tell us.

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 Meta Platforms, this is the formula:

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

0.29 = US$65b ÷ (US$256b – US$33b) (Based on the trailing twelve months to September 2024).

Therefore, Meta Platforms has an ROCE of 29%. In absolute terms that’s a great return and it’s even better than the Interactive Media and Services industry average of 6.8%.

View our latest analysis for Meta Platforms

Above you can see how the current ROCE for Meta Platforms compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Meta Platforms for free.

It’s hard not to be impressed by Meta Platforms’ returns on capital. The company has employed 101% more capital in the last five years, and the returns on that capital have remained stable at 29%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that’s even better. If these trends can continue, it wouldn’t surprise us if the company became a multi-bagger.

In the end, the company has proven it can reinvest it’s capital at high rates of returns, which you’ll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 182% return they’ve received 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.

On a final note, we’ve found 1 warning sign for Meta Platforms that we think you should be aware of.

Meta Platforms 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.