The Return Trends At Stadio Holdings (JSE:SDO) Look Promising

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Stadio Holdings (JSE:SDO) so let's look a bit deeper.

What Is 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 Stadio Holdings:

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

0.14 = R294m ÷ (R2.4b - R372m) (Based on the trailing twelve months to June 2023).

Therefore, Stadio Holdings has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Services industry average of 16%.

See our latest analysis for Stadio Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Stadio Holdings' ROCE against it's prior returns. If you'd like to look at how Stadio Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Stadio Holdings' ROCE Trend?

Stadio Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. 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 22%. So we're very much inspired by what we're seeing at Stadio Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From Stadio Holdings' ROCE

To sum it up, Stadio Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 30% to shareholders. So with that in mind, we think the stock deserves further research.

While Stadio Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SDO is currently trading for a fair price.

While Stadio Holdings 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.

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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.