The Trend Of High Returns At Dr. Martens (LON:DOCS) Has Us Very Interested

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at the ROCE trend of Dr. Martens (LON:DOCS) we really liked what we saw.

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 Dr. Martens is:

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

0.32 = UK£226m ÷ (UK£859m - UK£155m) (Based on the trailing twelve months to March 2022).

Thus, Dr. Martens has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Luxury industry average of 18%.

Check out our latest analysis for Dr. Martens

Above you can see how the current ROCE for Dr. Martens compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Dr. Martens here for free.

How Are Returns Trending?

Dr. Martens is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. 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 89%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Dr. Martens is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 42% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for Dr. Martens that we think you should be aware of.

Dr. Martens is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.