Doximity (NYSE:DOCS) knows how to distribute capital

When we want to find a potential multi-bagger, there are often underlying trends that can provide clues. Among other things, we want to see two things; firstly, a growing one return on the capital employed (ROCE) and secondly an expansion of the company’s success Crowd of the capital employed. This shows us that it is a compounding machine capable of continually reinvesting its profits back into the company and generating higher returns. So when we let our eyes wander over it Doximity’s (NYSE:DOCS) trend by ROCE, we really liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return) in relation to the capital employed in the company. The formula for this Doximity calculation is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.21 = $203 million ÷ ($1.1 billion – $132 million) (Based on the last twelve months ending September 2024).

So, Doximity has an ROCE of 21%. That’s a fantastic return, and what’s more, it exceeds the average of 6.8% achieved by companies in a similar industry.

Check out our latest analysis for Doximity

In the chart above, we measured Doximity’s past ROCE compared to its previous performance, but the future is arguably more important. If you want, you can check out analyst forecasts for Doximity free.

What does the ROCE trend tell us for Doximity?

We’d be pretty happy with returns on capital like Doximity. Over the past five years, ROCE has remained relatively constant at around 21%, and the company has invested 1,395% more capital in its operations. Returns like these are the envy of most companies, and considering they’ve repeatedly reinvested at these rates, it’s even better. You will see this when you look at well-run companies or favorable business models.

As a side note, Doximity has done well to reduce current liabilities to 12% of total assets over the last five years. This can eliminate some of the risks associated with operations as the company will have fewer outstanding obligations to its suppliers and/or short-term creditors than before.

The conclusion on Doximity’s ROCE

In short, we think Doximity has what it takes to be a multiplayer as it has been able to grow its capital to very profitable returns. But over the last three years the stock has fallen 11%, so the decline may be an opening. For this reason, we think it would be worth taking a closer look at this stock as the fundamentals are attractive.

If you want to know more about the risks Doximity faces, we found out 1 warning sign what you should be aware of.

If you want to look for more stocks that have delivered high returns, check this out free List of stocks with solid balance sheets that also generate high returns on equity.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.