We Think Oddity Tech (NASDAQ:ODD) Might Have The DNA Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Oddity Tech's (NASDAQ:ODD) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Oddity Tech is:

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

0.36 = US$135m ÷ (US$506m - US$125m) (Based on the trailing twelve months to September 2024).

Therefore, Oddity Tech has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 14%.

View our latest analysis for Oddity Tech

In the above chart we have measured Oddity Tech's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Oddity Tech for free.

What Does the ROCE Trend For Oddity Tech Tell Us?

We like the trends that we're seeing from Oddity Tech. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 36%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 380%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, Oddity Tech has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 9.9% return over the last year. In light of that, we think it's worth looking further into this stock because if Oddity Tech can keep these trends up, it could have a bright future ahead.

While Oddity Tech looks impressive, no company is worth an infinite price. The intrinsic value infographic for ODD 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.

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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.