Dadelo (WSE:DAD) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, Dadelo (WSE:DAD) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Dadelo is:

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

0.039 = zł4.2m ÷ (zł117m - zł11m) (Based on the trailing twelve months to June 2022).

Therefore, Dadelo has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Online Retail industry average of 12%.

View our latest analysis for Dadelo

Historical performance is a great place to start when researching a stock so above you can see the gauge for Dadelo's ROCE against it's prior returns. If you'd like to look at how Dadelo has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Dadelo's ROCE Trend?

Dadelo has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 3.9% which is a sight for sore eyes. Not only that, but the company is utilizing 708% more capital than before, but that's to be expected from a company trying to break into profitability. 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.

Our Take On Dadelo's ROCE

Long story short, we're delighted to see that Dadelo's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 55% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Dadelo (including 1 which is a bit concerning) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.