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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after investigating Dalrymple Bay Infrastructure (ASX:DBI), we don't think it's current trends fit the mold of a multi-bagger.
What Is 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. Analysts use this formula to calculate it for Dalrymple Bay Infrastructure:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = AU$244m ÷ (AU$3.9b - AU$604m) (Based on the trailing twelve months to June 2024).
Thus, Dalrymple Bay Infrastructure has an ROCE of 7.4%. On its own that's a low return, but compared to the average of 5.8% generated by the Infrastructure industry, it's much better.
See our latest analysis for Dalrymple Bay Infrastructure
In the above chart we have measured Dalrymple Bay Infrastructure's 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 Dalrymple Bay Infrastructure for free.
How Are Returns Trending?
There are better returns on capital out there than what we're seeing at Dalrymple Bay Infrastructure. The company has consistently earned 7.4% for the last four years, and the capital employed within the business has risen 32% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line On Dalrymple Bay Infrastructure's ROCE
Long story short, while Dalrymple Bay Infrastructure has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 84% over the last three years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Dalrymple Bay Infrastructure does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
While Dalrymple Bay Infrastructure 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.