U.S. Markets open in 5 hrs 5 mins
  • S&P Futures

    3,634.50
    +1.75 (+0.05%)
     
  • Dow Futures

    29,987.00
    -11.00 (-0.04%)
     
  • Nasdaq Futures

    12,112.00
    +36.00 (+0.30%)
     
  • Russell 2000 Futures

    1,853.10
    +1.60 (+0.09%)
     
  • Crude Oil

    45.36
    +0.45 (+1.00%)
     
  • Gold

    1,808.40
    +3.80 (+0.21%)
     
  • Silver

    23.40
    +0.10 (+0.43%)
     
  • EUR/USD

    1.1903
    +0.0007 (+0.0595%)
     
  • 10-Yr Bond

    0.8820
    0.0000 (0.00%)
     
  • Vix

    21.67
    -0.99 (-4.37%)
     
  • GBP/USD

    1.3344
    -0.0015 (-0.1108%)
     
  • USD/JPY

    104.4300
    -0.0500 (-0.0479%)
     
  • BTC-USD

    19,062.54
    +208.56 (+1.11%)
     
  • CMC Crypto 200

    378.08
    +8.32 (+2.25%)
     
  • FTSE 100

    6,434.02
    +1.85 (+0.03%)
     
  • Nikkei 225

    26,296.86
    +131.27 (+0.50%)
     

Is Amdocs (NASDAQ:DOX) Likely To Turn Things Around?

Simply Wall St
·3 min read

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Amdocs (NASDAQ:DOX) looks decent, right now, so lets see what the trend of returns can tell us.

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 Amdocs, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.12 = US$592m ÷ (US$6.4b - US$1.3b) (Based on the trailing twelve months to June 2020).

Thus, Amdocs has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the IT industry.

View our latest analysis for Amdocs

roce
roce

Above you can see how the current ROCE for Amdocs compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Amdocs.

What Does the ROCE Trend For Amdocs Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 25% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Amdocs has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

In the end, Amdocs has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 6.7% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a final note, we've found 1 warning sign for Amdocs that we think you should be aware of.

While Amdocs 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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.