When we want to find a potential multi-bagger, there are often underlying trends that can provide clues. We want to see two things, among other things; primarily a growing one yield on invested capital (ROCE) and secondly on an expansion of the company quantity of the invested capital. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. So when we looked at the ROCE trend of Netflix (NASDAQ:NFLX) we really liked what we saw.

If you’re new to ROCE, it measures the ‘return’ (pre-tax profit) that a company generates from the capital invested in its operations. The formula for this calculation on Netflix is:

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

0.23 = US$9.6 billion ÷ (US$52 billion – US$11 billion) (Based on the last twelve months to September 2024).

Therefore, Netflix has a ROCE of 23%. That’s a fantastic return, and not only that: it beats the average of 10% that companies in a similar sector earn.

Check out our latest analysis for Netflix

Above you can see how the current ROCE for Netflix compares to its past return on capital, but there’s only so much you can tell from the past. If you are interested, you can check out the analysts’ forecasts in our free analyst report for Netflix.

Netflix is ​​showing a number of positive trends. The data shows that returns on capital have increased significantly over the past five years to 23%. In fact, the company is earning more per dollar invested and is now using 76% more capital. This may indicate that there are plenty of opportunities to invest internal capital, at increasingly higher rates, a combination common among multi-baggers.

In short, Netflix has proven that it can reinvest in the business and generate higher returns on that invested capital, which is great. Considering the stock has returned a whopping 172% to shareholders over the past five years, it seems investors are recognizing these changes. That said, we still believe the promising fundamentals mean the company deserves further investigation.

However, before we draw any conclusions, we need to know what value we are getting for the current stock price. You can view ours there FREE Net Asset Value Estimate for NFLX that compares the stock price and appraised value.

High returns are a key ingredient for strong performance, so check out our free list of stocks that earn a high return on equity and have a solid balance sheet.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.