What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Oil-Dri Corporation of America (NYSE:ODC) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Oil-Dri Corporation of America:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$47m ÷ (US$319m - US$52m) (Based on the trailing twelve months to April 2024).
Thus, Oil-Dri Corporation of America has an ROCE of 17%. That's a pretty standard return and it's in line with the industry average of 17%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Oil-Dri Corporation of America's ROCE against it's prior returns. If you'd like to look at how Oil-Dri Corporation of America has performed in the past in other metrics, you can view this free graph of Oil-Dri Corporation of America's past earnings, revenue and cash flow.
What Can We Tell From Oil-Dri Corporation of America's ROCE Trend?
Oil-Dri Corporation of America is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 60% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Our Take On Oil-Dri Corporation of America's ROCE
All in all, it's terrific to see that Oil-Dri Corporation of America is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Oil-Dri Corporation of America can keep these trends up, it could have a bright future ahead.
If you want to continue researching Oil-Dri Corporation of America, you might be interested to know about the 1 warning sign that our analysis has discovered.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.