What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 looked at Comstock Holding Companies (NASDAQ:CHCI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Comstock Holding Companies is:

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

0.11 = US$2.7m ÷ (US$28m - US$3.6m) (Based on the trailing twelve months to March 2021).

Thus, Comstock Holding Companies has an ROCE of 11%. In isolation, that's a pretty standard return but against the Consumer Durables industry average of 14%, it's not as good.

View our latest analysis for Comstock Holding Companies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Comstock Holding Companies, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Comstock Holding Companies has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 11%, which is always encouraging. While returns have increased, the amount of capital employed by Comstock Holding Companies has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

One more thing to note, Comstock Holding Companies has decreased current liabilities to 13% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Comstock Holding Companies has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Comstock Holding Companies' ROCE

To sum it up, Comstock Holding Companies is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 254% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

If you want to continue researching Comstock Holding Companies, you might be interested to know about the 5 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

This article by Simply Wall St is general in nature. 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.

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