Has Daseke (NASDAQ:DSKE) Got What It Takes To Become A Multi-Bagger?
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Daseke (NASDAQ:DSKE) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What is it?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Daseke:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = US$20m ÷ (US$1.1b - US$227m) (Based on the trailing twelve months to June 2020).
Therefore, Daseke has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Transportation industry average of 10%.
See our latest analysis for Daseke
Above you can see how the current ROCE for Daseke compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Daseke here for free.
How Are Returns Trending?
When we looked at the ROCE trend at Daseke, we didn't gain much confidence. Around four years ago the returns on capital were 4.8%, but since then they've fallen to 2.2%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
What We Can Learn From Daseke's ROCE
From the above analysis, we find it rather worrisome that returns on capital and sales for Daseke have fallen, meanwhile the business is employing more capital than it was four years ago. Investors haven't taken kindly to these developments, since the stock has declined 55% from where it was three years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Daseke does have some risks though, and we've spotted 2 warning signs for Daseke that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.
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