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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Perdoceo Education's (NASDAQ:PRDO) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Perdoceo Education:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$179m ÷ (US$1.2b - US$132m) (Based on the trailing twelve months to December 2024).
Therefore, Perdoceo Education has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 11% it's much better.
Check out our latest analysis for Perdoceo Education
Above you can see how the current ROCE for Perdoceo Education compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Perdoceo Education .
So How Is Perdoceo Education's ROCE Trending?
While the current returns on capital are decent, they haven't changed much. The company has employed 123% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Key Takeaway
The main thing to remember is that Perdoceo Education has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 157% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Perdoceo Education could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for PRDO on our platform quite valuable.