We Like Grand Canyon Education's (NASDAQ:LOPE) Returns And Here's How They're Trending

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. And in light of that, the trends we're seeing at Grand Canyon Education's (NASDAQ:LOPE) look very promising so lets take a look.

What Is 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. Analysts use this formula to calculate it for Grand Canyon Education:

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

0.30 = US$249m ÷ (US$930m - US$97m) (Based on the trailing twelve months to December 2023).

Therefore, Grand Canyon Education has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 7.2% earned by companies in a similar industry.

View our latest analysis for Grand Canyon Education

In the above chart we have measured Grand Canyon Education's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Grand Canyon Education .

The Trend Of ROCE

Grand Canyon Education has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 34%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 33% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On Grand Canyon Education's ROCE

In summary, it's great to see that Grand Canyon Education has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.9% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

While Grand Canyon Education looks impressive, no company is worth an infinite price. The intrinsic value infographic for LOPE helps visualize whether it is currently trading for a fair price.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.