There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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, we've noticed some promising trends at Doxee (BIT:DOX) so let's look a bit deeper.
Understanding 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 Doxee:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €2.3m ÷ (€21m - €32k) (Based on the trailing twelve months to December 2019).
So, Doxee has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 12%.
View our latest analysis for Doxee
Above you can see how the current ROCE for Doxee compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
The fact that Doxee is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making two years ago but is is now generating 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Doxee is utilizing 283% more capital than it was two years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 0.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
What We Can Learn From Doxee's ROCE
In summary, it's great to see that Doxee has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Doxee can keep these trends up, it could have a bright future ahead.
If you want to continue researching Doxee, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Doxee isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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About BIT:DOX
Doxee
A high-tech company, provides products for customer communications management (CCM), digital customer experience, and Paperless.
Undervalued with reasonable growth potential.
