Yahoo Finance Solo Brands (NYSE:DTC) Might Have The Makings Of A Multi-Bagger
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Solo Brands' (NYSE:DTC) returns on capital, so let's have a look.
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. The formula for this calculation on Solo Brands is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.037 = US$21m ÷ (US$659m - US$89m) (Based on the trailing twelve months to December 2023).
Therefore, Solo Brands has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 16%.
View our latest analysis for Solo Brands
In the above chart we have measured Solo Brands' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Solo Brands .
How Are Returns Trending?
We're delighted to see that Solo Brands is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making four years ago but is is now generating 3.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Solo Brands is utilizing 483% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
Our Take On Solo Brands' ROCE
In summary, it's great to see that Solo Brands has managed to break into profitability and is continuing to reinvest in its business. And since the stock has dived 78% over the last year, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
While Solo Brands looks impressive, no company is worth an infinite price. The intrinsic value infographic for DTC helps visualize whether it is currently trading for a fair price.
While Solo Brands 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.
