Deutsche Post (ETR:DHL) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Deutsche Post (ETR:DHL) looks decent, right now, so lets see what the trend of returns can tell us.

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 Deutsche Post:

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

0.11 = €5.1b ÷ (€67b - €21b) (Based on the trailing twelve months to September 2024).

Therefore, Deutsche Post has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 13% generated by the Logistics industry.

View our latest analysis for Deutsche Post

In the above chart we have measured Deutsche Post's 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 Deutsche Post for free.

What Does the ROCE Trend For Deutsche Post Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Deutsche Post has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Deutsche Post has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 23% return to shareholders who held over that period. So to determine if Deutsche Post is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Deutsche Post does have some risks though, and we've spotted 1 warning sign for Deutsche Post that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.