Doximity (NYSE:DOCS) Looks To Prolong Its Impressive Returns

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Doximity's (NYSE:DOCS) trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for Doximity, this is the formula:

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

0.20 = US$189m ÷ (US$1.1b - US$135m) (Based on the trailing twelve months to June 2024).

Thus, Doximity has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 6.0% earned by companies in a similar industry.

See our latest analysis for Doximity

Above you can see how the current ROCE for Doximity compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Doximity .

So How Is Doximity's ROCE Trending?

In terms of Doximity's history of ROCE, it's quite impressive. The company has employed 1,537% more capital in the last five years, and the returns on that capital have remained stable at 20%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Doximity can keep this up, we'd be very optimistic about its future.

On a side note, Doximity has done well to reduce current liabilities to 13% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

In short, we'd argue Doximity has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last three years the stock has declined 53%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing to note, we've identified 1 warning sign with Doximity and understanding this should be part of your investment process.

Doximity is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.