Why We Like The Returns At d'Amico International Shipping (BIT:DIS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of d'Amico International Shipping (BIT:DIS) looks great, so lets see what the trend can tell us.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for d'Amico International Shipping, this is the formula:

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

0.27 = US$249m ÷ (US$1.0b - US$91m) (Based on the trailing twelve months to September 2023).

Thus, d'Amico International Shipping has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 15%.

View our latest analysis for d'Amico International Shipping

In the above chart we have measured d'Amico International Shipping's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering d'Amico International Shipping for free.

What Can We Tell From d'Amico International Shipping's ROCE Trend?

Shareholders will be relieved that d'Amico International Shipping has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 27% on its capital. While returns have increased, the amount of capital employed by d'Amico International Shipping has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On d'Amico International Shipping's ROCE

To bring it all together, d'Amico International Shipping has done well to increase the returns it's generating from its capital employed. And a remarkable 665% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for d'Amico International Shipping (of which 1 is a bit concerning!) that you should know about.

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.