Why We Like The Returns At Christian Dior (EPA:CDI)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Christian Dior's (EPA:CDI) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Christian Dior is:

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

0.22 = €22b ÷ (€137b - €34b) (Based on the trailing twelve months to June 2023).

So, Christian Dior has an ROCE of 22%. In absolute terms that's a very respectable return and compared to the Luxury industry average of 20% it's pretty much on par.

Check out our latest analysis for Christian Dior

Historical performance is a great place to start when researching a stock so above you can see the gauge for Christian Dior's ROCE against it's prior returns. If you're interested in investigating Christian Dior's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Christian Dior's ROCE Trend?

Christian Dior is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. 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 75%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Christian Dior's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Christian Dior has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While Christian Dior looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CDI is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.