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 the ROCE trend of DocCheck (ETR:AJ91) we really liked what we saw.
What Is 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. To calculate this metric for DocCheck, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.37 = €16m ÷ (€57m - €12m) (Based on the trailing twelve months to December 2021).
Thus, DocCheck has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
Check out our latest analysis for DocCheck
Historical performance is a great place to start when researching a stock so above you can see the gauge for DocCheck's ROCE against it's prior returns. If you're interested in investigating DocCheck's past further, check out this free graph of past earnings, revenue and cash flow.
So How Is DocCheck's ROCE Trending?
The trends we've noticed at DocCheck are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 118%. So we're very much inspired by what we're seeing at DocCheck thanks to its ability to profitably reinvest capital.
In Conclusion...
In summary, it's great to see that DocCheck can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if DocCheck can keep these trends up, it could have a bright future ahead.
If you want to know some of the risks facing DocCheck we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
About XTRA:AJ91
DocCheck
Offers marketing and e-commerce services for the healthcare sector in Europe.
Flawless balance sheet, good value and pays a dividend.
