If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Deckers Outdoor's (NYSE:DECK) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Deckers Outdoor is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.43 = US$1.1b ÷ (US$3.4b - US$876m) (Based on the trailing twelve months to September 2024).
So, Deckers Outdoor has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Luxury industry average of 13%.
In the above chart we have measured Deckers Outdoor'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 analyst report for Deckers Outdoor .
So How Is Deckers Outdoor's ROCE Trending?
Investors would be pleased with what's happening at Deckers Outdoor. Over the last five years, returns on capital employed have risen substantially to 43%. The amount of capital employed has increased too, by 106%. So we're very much inspired by what we're seeing at Deckers Outdoor thanks to its ability to profitably reinvest capital.
In Conclusion...
All in all, it's terrific to see that Deckers Outdoor is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 568% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Deckers Outdoor you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.
