Danya Cebus (TLV:DNYA) Could Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Danya Cebus' (TLV:DNYA) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Danya Cebus, this is the formula:

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

0.29 = ₪214m ÷ (₪2.2b - ₪1.5b) (Based on the trailing twelve months to September 2022).

Thus, Danya Cebus has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 6.4%.

View our latest analysis for Danya Cebus

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

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Danya Cebus. We found that the returns on capital employed over the last three years have risen by 788%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 71% less capital than it was three years ago. Danya Cebus may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, Danya Cebus' current liabilities are still rather high at 66% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Danya Cebus' ROCE

From what we've seen above, Danya Cebus has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 11% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 2 warning signs for Danya Cebus (1 is concerning) you should be aware of.

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.