We Like These Underlying Return On Capital Trends At Comstock Holding Companies (NASDAQ:CHCI)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Comstock Holding Companies (NASDAQ:CHCI) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Comstock Holding Companies is:

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

0.06 = US$2.1m ÷ (US$40m - US$5.0m) (Based on the trailing twelve months to June 2021).

So, Comstock Holding Companies has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 15%.

View our latest analysis for Comstock Holding Companies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Comstock Holding Companies' ROCE against it's prior returns. If you're interested in investigating Comstock Holding Companies' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Comstock Holding Companies 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 five years ago but is is now generating 6.0% on its capital. Not only that, but the company is utilizing 34% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Comstock Holding Companies has decreased current liabilities to 12% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

To the delight of most shareholders, Comstock Holding Companies has now broken into profitability. Since the stock has returned a staggering 132% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Comstock Holding Companies can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with Comstock Holding Companies (including 1 which can't be ignored) .

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.

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.

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