Yahoo Finance Investors Will Want Docebo's (TSE:DCBO) Growth In ROCE To Persist
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Docebo (TSE:DCBO) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Docebo, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$8.7m ÷ (US$173m - US$108m) (Based on the trailing twelve months to March 2024).
Therefore, Docebo has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Software industry average of 12%.
See our latest analysis for Docebo
Above you can see how the current ROCE for Docebo 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 analyst report for Docebo .
What Can We Tell From Docebo's ROCE Trend?
We're delighted to see that Docebo is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses four years ago, but now it's earning 13% which is a sight for sore eyes. In addition to that, Docebo is employing 93% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 63% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.
The Key Takeaway
In summary, it's great to see that Docebo has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 23% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Like most companies, Docebo does come with some risks, and we've found 2 warning signs that you should be aware of.
While Docebo 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.
