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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Delta Air Lines (NYSE:DAL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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$6.1b ÷ (US$74b - US$26b) (Based on the trailing twelve months to December 2023).
Thus, Delta Air Lines has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Airlines industry.
See 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're interested, you can view the analysts predictions in our free analyst report for Delta Air Lines .
So How Is Delta Air Lines' ROCE Trending?
Over the past five years, Delta Air Lines' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Delta Air Lines to be a multi-bagger going forward.
Our Take On Delta Air Lines' ROCE
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. And investors appear hesitant that the trends will pick up because the stock has fallen 10% in the last five years. 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, we've spotted 1 warning sign facing Delta Air Lines that you might find interesting.
While Delta Air Lines may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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:DAL
Delta Air Lines
Provides scheduled air transportation for passengers and cargo in the United States and internationally.
Undervalued with proven track record.
