Did you know there are financial indicators that can give clues about a potential multi-bagger? In particular, there are two things to look out for. First, return Return on Invested Capital (ROCE) and secondly, the company’s amount This is the ratio of invested capital to total capital. Essentially, this means that a company can continually reinvest in profitable endeavors. This is the hallmark of a compound interest machine. data dog (NASDAQ:DDOG) and its ROCE trend, we really liked what we saw.
What is return on invested capital (ROCE)?
For those of you who haven’t used ROCE before, it measures the “return on investment” (profit before tax) a company generates from the capital employed in its business. The formula for calculating it in Datadog is:
Return on invested capital = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.0043 = US$14 million ÷ (US$4.1 billion – US$973 million) (Based on the previous 12 months to March 2024).
So, Datadog’s ROCE is 0.4%. In absolute terms, this is a low return, below the software industry average of 7.1%.
Read Datadog’s latest analysis
In the chart above, you can see how Datadog’s current ROCE compares to its historical return on equity, but the past can only tell you so much.If you’re interested, check out our analyst forecasts. free Datadog Analyst Report.
What are the return trends like?
Datadog has been profitable recently, so it appears that previous investments are paying off. The company was in the red five years ago, but now its profit is an eye-watering 0.4%. Not only that, the company is leveraging his 2,894% more capital than before, which is not surprising for a company trying to ensure profitability. This indicates that the company has plenty of reinvestment opportunities that can generate higher returns.
In another part of our analysis, we noticed that the company’s current liabilities to total assets ratio has decreased to 23%. This means that companies are no longer dependent on suppliers and short-term creditors to finance their operations. So shareholders will be pleased to see that the increase in profits is mainly due to underlying performance.
Important points
Simply put, we’re happy to see Datadog’s reinvestment efforts are paying off and the company is profitable. The company’s stock has also returned 34% of his profits to shareholders over the past three years, so investors seem to expect this trend to continue. So, given that the company’s stock has proven to be on an encouraging trend, it’s worth researching the company further to see if this trend continues.
If you want to know about the risks Datadog faces, here’s what we’ve discovered: 2 warning signs Here’s what you need to know.
For those who want to invest solid company, check this out free A list of companies with strong balance sheets and high return on equity.
Valuation is complicated, but we can help make it simple.
Check out our comprehensive analysis, including the following, to see if Datadog is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
