Stock Analysis

Ducommun (NYSE:DCO) Shareholders Will Want The ROCE Trajectory To Continue

  •  Updated
NYSE:DCO
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Ducommun (NYSE:DCO) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Ducommun is:

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

0.069 = US$48m ÷ (US$837m - US$143m) (Based on the trailing twelve months to December 2020).

Therefore, Ducommun has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Aerospace & Defense industry average of 8.1%.

Check out our latest analysis for Ducommun

roce
NYSE:DCO Return on Capital Employed March 25th 2021

Above you can see how the current ROCE for Ducommun compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ducommun here for free.

What Does the ROCE Trend For Ducommun Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Ducommun's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ducommun has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Ducommun (1 can't be ignored) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

When trading Ducommun or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Ducommun is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis