Yahoo Finance Investors Shouldn't Overlook The Favourable Returns On Capital At Domino's Pizza Group (LON:DOM)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ergo, when we looked at the ROCE trends at Domino's Pizza Group (LON:DOM), we liked what we saw.
What Is 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. To calculate this metric for Domino's Pizza Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = UK£112m ÷ (UK£513m - UK£143m) (Based on the trailing twelve months to December 2023).
So, Domino's Pizza Group has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 7.7%.
Check out our latest analysis for Domino's Pizza Group
In the above chart we have measured Domino's Pizza Group'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 Domino's Pizza Group .
What Does the ROCE Trend For Domino's Pizza Group Tell Us?
It's hard not to be impressed by Domino's Pizza Group's returns on capital. Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 36% more capital into its operations. Now considering ROCE is an attractive 30%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.
Our Take On Domino's Pizza Group's ROCE
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Therefore it's no surprise that shareholders have earned a respectable 45% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
One final note, you should learn about the 5 warning signs we've spotted with Domino's Pizza Group (including 2 which are significant) .
Domino's Pizza Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
