Perdoceo Education (NASDAQ:PRDO) Is Very Good At Capital Allocation

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Perdoceo Education's (NASDAQ:PRDO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Perdoceo Education, this is the formula:

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

0.22 = US$145m ÷ (US$786m - US$118m) (Based on the trailing twelve months to June 2021).

Thus, Perdoceo Education has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Consumer Services industry average of 7.7%.

See 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'd like to see what analysts are forecasting going forward, you should check out our free report for Perdoceo Education.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Perdoceo Education. Over the last five years, returns on capital employed have risen substantially to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 58% more capital is being employed now too. So we're very much inspired by what we're seeing at Perdoceo Education thanks to its ability to profitably reinvest capital.

The Bottom Line On Perdoceo Education's ROCE

All in all, it's terrific to see that Perdoceo Education is reaping the rewards from prior investments and is growing its capital base. And with a respectable 60% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Perdoceo Education can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Perdoceo Education that you might find interesting.

Perdoceo Education is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

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