Shopify (NYSE:SHOP) Is Doing The Right Things To Multiply Its Share Price

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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. 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 Shopify ( NYSE:SHOP ) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Shopify, this is the formula:

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

Thus, Shopify has an ROCE of 9.4%. On its own, that's a low figure but it's around the 11% average generated by the IT industry.

In the above chart we have measured Shopify's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Shopify .

In summary, it's great to see that Shopify has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 157% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Shopify 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.