IDT's High Returns: A Trend Worth Watching

In the ever-evolving world of investing, finding a company that consistently delivers high returns on capital employed (ROCE) is like striking gold. idt corporation (NYSE:IDT) has caught our attention with its impressive performance in this area. Let's dive into the details and see why this trend has us very interested.



The Power of High ROCE

IDT Corporation has seen a remarkable increase in its ROCE over the past five years, reaching an impressive 30%. This figure is not only significantly higher than the industry average of 8.4% but also indicates that the company is effectively reinvesting its earnings to generate higher returns. This is a key characteristic of compounding machines—companies that continually reinvest their earnings at ever-higher rates of return.



Sustainable Growth Factors

Several factors contribute to IDT's high ROCE and its sustainability:

1. Efficient Capital Utilization: idt has shown a 367% increase in the amount of capital employed over the last five years. This indicates that the company has numerous opportunities to reinvest internally and achieve higher returns.

2. Strong Earnings: For the trailing twelve months to January 2025, IDT's earnings before interest and tax (EBIT) were $88 million. This strong earnings performance, combined with efficient capital utilization, results in a high ROCE.

3. Reduced Reliance on Short-Term Debt: The company's ratio of current liabilities to total assets has decreased to 48%, indicating that IDT is relying less on short-term creditors and suppliers to fund its operations. This reduction in reliance on short-term debt improves the company's financial stability and suggests that the high ROCE is not solely dependent on leveraging debt.

Strategic Initiatives Driving Growth

IDT's strategic initiatives are a significant driver of its high ROCE. For example, NRS, one of IDT's segments, added 1,800 net new active point-of-sale (POS) terminals in the fourth quarter of fiscal year 2024, reaching approximately 32,100 terminals. This expansion has led to a 42% increase in recurring revenue and a 252% jump in income from operations for NRS.

Similarly, BOSS Money increased remittance transactions by 42% to 5.4 million and revenue by 41% to $31.5 million in the same period. These growth figures suggest that IDT's fintech and cloud communications segments are performing well and are likely to continue contributing to the company's high ROCE.

Competitive Advantage

IDT's strategy of reinvesting earnings at ever-higher rates of return provides a significant competitive advantage over its peers in the telecom sector. Many telecom companies have significant debt on their balance sheets due to infrastructure CapEx, making them vulnerable to economic downturns and interest rate hikes. IDT's internal growth strategy helps the company maintain financial stability and continue to expand its operations, even in challenging economic conditions.

Conclusion

IDT Corporation's high ROCE is driven by efficient capital utilization, strong earnings, and strategic growth initiatives. These factors are supported by data showing significant increases in both ROCE and capital employed, as well as a reduction in reliance on short-term debt. The sustainability of these factors is likely to be maintained through continued strategic investments and growth in key segments such as NRS and BOSS Money.

As investors, we are always on the lookout for companies that can deliver consistent returns. IDT Corporation's impressive performance in this area makes it a company worth watching. Whether you are a seasoned investor or just starting out, keeping an eye on IDT's progress could pay off in the long run.

Ask Aime: Why is IDT Corporation posting such high returns on capital employed?