D-Link (India) (NSE:DLINKINDIA) Is Aiming To Keep Up Its Impressive Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at D-Link (India) (NSE:DLINKINDIA), we liked what we saw.

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. Analysts use this formula to calculate it for D-Link (India):

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

0.25 = ₹1.1b ÷ (₹7.0b - ₹2.6b) (Based on the trailing twelve months to March 2024).

Therefore, D-Link (India) has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Electronic industry average of 14%.

See our latest analysis for D-Link (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for D-Link (India)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of D-Link (India).

So How Is D-Link (India)'s ROCE Trending?

We'd be pretty happy with returns on capital like D-Link (India). Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 108% more capital into its operations. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If D-Link (India) can keep this up, we'd be very optimistic about its future.

Our Take On D-Link (India)'s ROCE

In short, we'd argue D-Link (India) has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 601% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 3 warning signs with D-Link (India) (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

D-Link (India) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com