The Trend Of High Returns At EuroDry (NASDAQ:EDRY) Has Us Very Interested
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at EuroDry's (NASDAQ:EDRY) look very promising so lets take a look.
Return On Capital Employed (ROCE): What is it?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for EuroDry:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$46m ÷ (US$169m - US$18m) (Based on the trailing twelve months to March 2022).
Therefore, EuroDry has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.
Check out our latest analysis for EuroDry
Above you can see how the current ROCE for EuroDry 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 EuroDry here for free.
The Trend Of ROCE
We're delighted to see that EuroDry is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 30% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, EuroDry is utilizing 78% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
Long story short, we're delighted to see that EuroDry's reinvestment activities have paid off and the company is now profitable. And a remarkable 312% total return over the last three years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we found 6 warning signs for EuroDry (2 are a bit unpleasant) you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
