If you’re not sure where to start when you’re looking for your next multibugger, there are some important trends to keep an eye on. I would like to see two things in particular. First, the increased return on capital employed (ROCE), and secondly, the increased amount of employed capital of the company. Essentially, this means that companies have profitable initiatives that allow them to continue reinvestment. This is a characteristic of multifunction devices. So when we saw the Roce trends in AppFolio (NASDAQ: APPF), we really liked what we saw.
To clarify whether you are unsure, Roce is an indicator for assessing the amount of pre-tax income (in percentage) that a company earns from the capital it invests in its business. To calculate this metric in an AppFolio, this is the formula:
Return on Employed Capital = Interest and Earnings Before Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.24 = US$136 million ÷ (US$627 million-US$63 million) (based on the 12 months ending December 2024).
Therefore, AppFolio’s Roce is 24%. In absolute terms, it is a big return, even better than the average 9.0% in the software industry.
Check out the latest analysis of AppFolio
In the chart above, we measured Appfolio’s previous Roce against its previous performance, but the future is undoubtedly more important. If you want to see what analysts are forecasting in the future, check out AppFolio’s free analyst report.
AppFolio shows some positive trends. Over the past five years, the return on capital employed has risen significantly. The amount of capital employed has also increased by 165%. So, thanks to its ability to profitably reinvest capital, it is very inspired by what we see in Appfolio.
Overall, it’s great to see Appfolio gaining rewards from previous investments and expanding its capital base. Investors appear to be aware of these changes as the stock has returned an astounding 124% to shareholders over the past five years. Therefore, given that stocks prove to be promising trends, it is worth exploring the company further to see if these trends could last.
Appfolio has some risks and I found one warning sign for an AppFolio that I’m interested in.
High returns are a key element of strong performance. So check out our free list of stocks that earn fair returns with solid balance sheets.
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