DNXCorp (EPA:ALDNX) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 DNXCorp (EPA:ALDNX) looks great, so lets see what the trend can tell us.

Understanding 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 DNXCorp:

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

0.33 = €4.0m ÷ (€19m - €7.3m) (Based on the trailing twelve months to December 2021).

Thus, DNXCorp has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Interactive Media and Services industry average of 20%.

View our latest analysis for DNXCorp

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

So How Is DNXCorp's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at DNXCorp. The data shows that returns on capital have increased by 23% over the trailing five years. The company is now earning €0.3 per dollar of capital employed. In regards to capital employed, DNXCorp appears to been achieving more with less, since the business is using 36% less capital to run its operation. DNXCorp may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On DNXCorp's ROCE

In a nutshell, we're pleased to see that DNXCorp has been able to generate higher returns from less capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if DNXCorp can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing DNXCorp that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.