Returns Are Gaining Momentum At Doman Building Materials Group (TSE:DBM)

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3 days ago

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 looked at Doman Building Materials Group (TSE:DBM) and its trend of ROCE, we really liked what we saw.
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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. The formula for this calculation on Doman Building Materials Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.069 = CA$136m ÷ (CA$2.2b - CA$233m) (Based on the trailing twelve months to March 2025).
Therefore, Doman Building Materials Group has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 10%.
Check out our latest analysis for Doman Building Materials Group
In the above chart we have measured Doman Building Materials Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Doman Building Materials Group for free.
What Can We Tell From Doman Building Materials Group's ROCE Trend?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 130% more capital is being employed now too. So we're very much inspired by what we're seeing at Doman Building Materials Group thanks to its ability to profitably reinvest capital.
Our Take On Doman Building Materials Group's ROCE
In summary, it's great to see that Doman Building Materials Group can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 87% return over the last five years. In light of that, we think it's worth looking further into this stock because if Doman Building Materials Group can keep these trends up, it could have a bright future ahead.
Doman Building Materials Group does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...
While Doman Building Materials Group 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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