Great Lakes Dredge & Dock (NASDAQ:GLDD) Is Doing The Right Things To Multiply Its Share Price
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at Great Lakes Dredge & Dock (NASDAQ:GLDD) and its trend of ROCE, we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Great Lakes Dredge & Dock is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = US$83m ÷ (US$998m - US$155m) (Based on the trailing twelve months to December 2021).
So, Great Lakes Dredge & Dock has an ROCE of 9.9%. On its own, that's a low figure but it's around the 8.3% average generated by the Construction industry.
Check out our latest analysis for Great Lakes Dredge & Dock
Above you can see how the current ROCE for Great Lakes Dredge & Dock 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 Great Lakes Dredge & Dock here for free.
How Are Returns Trending?
Great Lakes Dredge & Dock is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 136% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
In Conclusion...
To bring it all together, Great Lakes Dredge & Dock has done well to increase the returns it's generating from its capital employed. And a remarkable 237% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Great Lakes Dredge & Dock can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 2 warning signs facing Great Lakes Dredge & Dock that you might find interesting.
While Great Lakes Dredge & Dock isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
