Investors Should Be Encouraged By Docebo's (TSE:DCBO) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. And in light of that, the trends we're seeing at Docebo's (TSE:DCBO) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Docebo:

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

0.29 = US$14m ÷ (US$174m - US$127m) (Based on the trailing twelve months to June 2024).

So, Docebo has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Software industry average of 16%.

View our latest analysis for Docebo

In the above chart we have measured Docebo's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Docebo .

What The Trend Of ROCE Can Tell Us

Docebo has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 29% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Docebo is utilizing 46% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 73% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

To the delight of most shareholders, Docebo has now broken into profitability. Since the stock has returned a staggering 316% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for DCBO on our platform that is definitely worth checking out.

Docebo 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.