The Returns At Delta Plus Group (EPA:DLTA) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Delta Plus Group (EPA:DLTA) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Delta Plus Group:

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

0.18 = €40m ÷ (€362m - €135m) (Based on the trailing twelve months to June 2020).

Therefore, Delta Plus Group has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.7% generated by the Commercial Services industry.

View our latest analysis for Delta Plus Group

Above you can see how the current ROCE for Delta Plus Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Delta Plus Group.

So How Is Delta Plus Group's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 109% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Delta Plus Group's ROCE

In the end, Delta Plus Group has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 241% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Delta Plus Group that you might find interesting.

While Delta Plus Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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