Stock Analysis

We Think Grand Canyon Education (NASDAQ:LOPE) Might Have The DNA Of A Multi-Bagger

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NasdaqGS:LOPE
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Grand Canyon Education (NASDAQ:LOPE) we really liked what we saw.

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)

0.35 = US$275m ÷ (US$918m - US$133m) (Based on the trailing twelve months to March 2022).

Thus, Grand Canyon Education has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Consumer Services industry average of 6.3%.

View our latest analysis for Grand Canyon Education

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NasdaqGS:LOPE Return on Capital Employed May 30th 2022

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'd like to see what analysts are forecasting going forward, you should check out our free report for Grand Canyon Education.

What Can We Tell From Grand Canyon Education's ROCE Trend?

Grand Canyon Education has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 30% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Grand Canyon Education's ROCE

In summary, we're delighted to see that Grand Canyon Education has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 12% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Grand Canyon Education (of which 1 is potentially serious!) that you should know about.

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.

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

Find out whether Grand Canyon Education 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.

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