Returns At Perdoceo Education (NASDAQ:PRDO) Appear To Be Weighed Down
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Perdoceo Education's (NASDAQ:PRDO) ROCE trend, we were pretty happy with 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. Analysts use this formula to calculate it for Perdoceo Education:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$148m ÷ (US$1.0b - US$161m) (Based on the trailing twelve months to June 2023).
So, Perdoceo Education has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 7.4% it's much better.
View our latest analysis for Perdoceo Education
Above you can see how the current ROCE for Perdoceo Education 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 Perdoceo Education.
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 17% and the business has deployed 142% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that Perdoceo Education 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.
What We Can Learn From Perdoceo Education's ROCE
In the end, Perdoceo Education has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 35% return to shareholders who held over that period. So to determine if Perdoceo Education is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Perdoceo Education does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.
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.
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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.
