Stock Analysis

Returns On Capital At Daseke (NASDAQ:DSKE) Have Stalled

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 investigating Daseke (NASDAQ:DSKE), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 Daseke:

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

0.057 = US$53m ÷ (US$1.1b - US$191m) (Based on the trailing twelve months to December 2020).

So, Daseke has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Transportation industry average of 10%.

See our latest analysis for Daseke

NasdaqCM:DSKE Return on Capital Employed April 16th 2021

In the above chart we have measured Daseke's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Daseke Tell Us?

The returns on capital haven't changed much for Daseke in recent years. Over the past five years, ROCE has remained relatively flat at around 5.7% and the business has deployed 81% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Daseke's ROCE

As we've seen above, Daseke's returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly then, the total return to shareholders over the last three years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing: We've identified 3 warning signs with Daseke (at least 1 which is potentially serious) , and understanding these would certainly be useful.

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