Returns On Capital At Perdoceo Education (NASDAQ:PRDO) Paint A Concerning Picture

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Perdoceo Education (NASDAQ:PRDO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. Analysts use this formula to calculate it for Perdoceo Education:

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

0.17 = US$193m ÷ (US$1.3b - US$165m) (Based on the trailing twelve months to September 2025).

Thus, Perdoceo Education has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Consumer Services industry.

See our latest analysis for Perdoceo Education

In the above chart we have measured Perdoceo 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 analyst report for Perdoceo Education .

So How Is Perdoceo Education's ROCE Trending?

When we looked at the ROCE trend at Perdoceo Education, we didn't gain much confidence. Around five years ago the returns on capital were 24%, but since then they've fallen to 17%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Perdoceo Education's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Perdoceo Education is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 154% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Perdoceo Education could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for PRDO on our platform quite valuable.

While Perdoceo Education may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.