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Will DRDGOLD's (NYSE:DRD) Growth In ROCE Persist?

Simply Wall St
·3 min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at DRDGOLD (NYSE:DRD) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on DRDGOLD is:

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

0.19 = R938m ÷ (R5.7b - R746m) (Based on the trailing twelve months to June 2020).

So, DRDGOLD has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 8.0% it's much better.

See our latest analysis for DRDGOLD

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roce

Above you can see how the current ROCE for DRDGOLD compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Investors would be pleased with what's happening at DRDGOLD. The data shows that returns on capital have increased substantially over the last five years to 19%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 124%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From DRDGOLD's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what DRDGOLD has. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if DRDGOLD can keep these trends up, it could have a bright future ahead.

On a final note, we've found 3 warning signs for DRDGOLD that we think you should be aware of.

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.

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