If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 on that note, DRDGOLD (NYSE:DRD) looks quite promising in regards to its trends of return on capital.
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 DRDGOLD is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = R1.2b ÷ (R7.3b - R551m) (Based on the trailing twelve months to December 2022).
Thus, DRDGOLD has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 12% it's much better.
View our latest analysis for DRDGOLD
Historical performance is a great place to start when researching a stock so above you can see the gauge for DRDGOLD's ROCE against it's prior returns. If you'd like to look at how DRDGOLD has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
The trends we've noticed at DRDGOLD are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. 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 222%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line
All in all, it's terrific to see that DRDGOLD is reaping the rewards from prior investments and is growing its capital base. And a remarkable 400% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if DRDGOLD can keep these trends up, it could have a bright future ahead.
DRDGOLD does have some risks though, and we've spotted 1 warning sign for DRDGOLD that you might be interested in.
While DRDGOLD isn't earning the highest return, check out this free list of companies that are 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.
About NYSE:DRD
DRDGOLD
A gold mining company, engages in the extraction of gold from the retreatment of surface mine tailings in South Africa.
Excellent balance sheet second-rate dividend payer.
