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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Delta Air Lines (NYSE:DAL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Delta Air Lines, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$6.0b ÷ (US$75b - US$29b) (Based on the trailing twelve months to June 2024).
Therefore, Delta Air Lines has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Airlines industry average of 10% it's much better.
View our latest analysis for Delta Air Lines
In the above chart we have measured Delta Air Lines' 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 Delta Air Lines for free.
So How Is Delta Air Lines' ROCE Trending?
Things have been pretty stable at Delta Air Lines, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Delta Air Lines doesn't end up being a multi-bagger in a few years time.
The Bottom Line
We can conclude that in regards to Delta Air Lines' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 29% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Delta Air Lines has the makings of a multi-bagger.
One more thing to note, we've identified 1 warning sign with Delta Air Lines and understanding it should be part of your investment process.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About NYSE:DAL
Delta Air Lines
Provides scheduled air transportation for passengers and cargo in the United States and internationally.
Undervalued with solid track record and pays a dividend.
