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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Oddity Tech's (NASDAQ:ODD) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Oddity Tech is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.36 = US$135m ÷ (US$506m - US$125m) (Based on the trailing twelve months to September 2024).

Thus, Oddity Tech has an ROCE of 36%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 14%.

Check out our latest analysis for Oddity Tech

Above you can see how the current ROCE for Oddity Tech compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Oddity Tech .

How Are Returns Trending?

Investors would be pleased with what's happening at Oddity Tech. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 36%. Basically the business is earning more per dollar of capital invested and in addition to that, 380% more capital is being employed now too. So we're very much inspired by what we're seeing at Oddity Tech thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Oddity Tech has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Oddity Tech'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 Oddity Tech has. And with a respectable 9.9% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for ODD on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.