The Trends At AMCON Distributing (NYSEMKT:DIT) That You Should Know About

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think AMCON Distributing (NYSEMKT:DIT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AMCON Distributing:

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

0.10 = US$12m ÷ (US$158m - US$37m) (Based on the trailing twelve months to December 2020).

So, AMCON Distributing has an ROCE of 10%. In isolation, that's a pretty standard return but against the Retail Distributors industry average of 27%, it's not as good.

View our latest analysis for AMCON Distributing

Historical performance is a great place to start when researching a stock so above you can see the gauge for AMCON Distributing's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of AMCON Distributing, check out these free graphs here.

What Does the ROCE Trend For AMCON Distributing Tell Us?

On the surface, the trend of ROCE at AMCON Distributing doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 10%. 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.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for AMCON Distributing. And the stock has followed suit returning a meaningful 57% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

One final note, you should learn about the 3 warning signs we've spotted with AMCON Distributing (including 1 which is potentially serious) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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