Investors Will Want dentalcorp Holdings' (TSE:DNTL) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at dentalcorp Holdings (TSE:DNTL) and its trend of ROCE, we really liked 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 dentalcorp Holdings:

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

0.00022 = CA$700k ÷ (CA$3.4b - CA$176m) (Based on the trailing twelve months to June 2023).

Thus, dentalcorp Holdings has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 6.3%.

See our latest analysis for dentalcorp Holdings

In the above chart we have measured dentalcorp Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering dentalcorp Holdings here for free.

What The Trend Of ROCE Can Tell Us

dentalcorp Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses three years ago, but now it's earning 0.02% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, dentalcorp Holdings is utilizing 34% more capital than it was three years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On dentalcorp Holdings' ROCE

Overall, dentalcorp Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 14% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

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

While dentalcorp Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.