We love the returns from Destination XL Group (NASDAQ: DXLG) and here is their trend

Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we take a look at a few key financial metrics. In a perfect world, we would like a business to invest more capital in their business and ideally the returns from that capital increase as well. Simply put, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. And in light of this, the trends that we are observing at Destination XL Group (NASDAQ: DXLG) look very promising, so let’s take a look.

Return on capital employed (ROCE): what is it?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Destination XL Group is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.26 = US $ 43 million ÷ (US $ 264 million – US $ 100 million) (Based on the last twelve months up to October 2021).

Therefore, The Destination XL Group has a ROCE of 26%. In absolute terms, that’s a great return and it’s even better than the 20% specialty retail industry average.

NasdaqGM: DXLG Return on the capital employed on December 24, 2021

Above you can see how Destination XL Group’s current ROCE compares to its previous returns on equity, but there is little you can say about the past. If you wish, you can consult here the forecasts of the analysts of Destination XL Group for free.

The ROCE trend

Shareholders will be relieved that the Destination XL Group has returned to profitability. The company is now gaining 26% on its capital, because five years ago it was suffering losses. While returns increased, the amount of capital employed by Destination XL Group remained stable over the period. In the absence of a noticeable increase in capital employed, it helps to know what the business plans to do in the future in terms of reinvestment and business growth. Because at the end of the day, a business cannot become so efficient.

What we can learn from Destination XL Group’s ROCE

To sum up, Destination XL Group collects higher returns for the same amount of capital, and that’s impressive. Given that the stock has delivered 30% to its shareholders over the past five years, it may be fair to think that investors are not yet fully aware of the promising trends. So with that in mind, we believe the stock deserves further research.

If you want to know some of the risks that the Destination XL Group faces, we have found 4 warning signs (1 shouldn’t be ignored!) Which you should be aware of before investing here.

If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link

Comments are closed.