If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. With that in mind, we've noticed some promising trends at Perion Network (NASDAQ:PERI) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Perion Network, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$72m ÷ (US$712m - US$166m) (Based on the trailing twelve months to June 2022).
Therefore, Perion Network has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 7.4% it's much better.
Above you can see how the current ROCE for Perion Network 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 Perion Network here for free.
So How Is Perion Network's ROCE Trending?
Perion Network is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 138%. So we're very much inspired by what we're seeing at Perion Network thanks to its ability to profitably reinvest capital.
The Bottom Line On Perion Network's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Perion Network has. And a remarkable 480% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Perion Network you'll probably want to know about.
While Perion Network may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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