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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at National Beverage's (NASDAQ:FIZZ) ROCE trend, we were very 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 National Beverage:

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).

Thus, National Beverage has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

See our latest analysis for National Beverage

Above you can see how the current ROCE for National Beverage 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 National Beverage here for free.

So How Is National Beverage's ROCE Trending?

In terms of National Beverage's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 40% and the business has deployed 21% more capital into its operations. Now considering ROCE is an attractive 40%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From National Beverage's ROCE

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 the stock has followed suit returning a meaningful 55% to shareholders 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.

National Beverage does have some risks though, and we've spotted 2 warning signs for National Beverage that you might be interested in.