Daily Journal (NASDAQ:DJCO) Might Have The Makings Of A Multi-Bagger
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Daily Journal's (NASDAQ:DJCO) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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 Daily Journal:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.027 = US$8.6m ÷ (US$355m - US$42m) (Based on the trailing twelve months to September 2023).
Therefore, Daily Journal has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Media industry average of 7.7%.
View our latest analysis for Daily Journal
Historical performance is a great place to start when researching a stock so above you can see the gauge for Daily Journal's ROCE against it's prior returns. If you're interested in investigating Daily Journal's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Daily Journal Tell Us?
The fact that Daily Journal is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.7% on its capital. In addition to that, Daily Journal is employing 32% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
Long story short, we're delighted to see that Daily Journal's reinvestment activities have paid off and the company is now profitable. And with a respectable 58% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.
Daily Journal does have some risks though, and we've spotted 1 warning sign for Daily Journal that you might be interested in.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
