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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Andlauer Healthcare Group (TSE:AND) looks decent, right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Andlauer Healthcare Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = CA$94m ÷ (CA$687m - CA$93m) (Based on the trailing twelve months to March 2024).
Therefore, Andlauer Healthcare Group has an ROCE of 16%. That's a pretty standard return and it's in line with the industry average of 16%.
View our latest analysis for Andlauer Healthcare Group
Above you can see how the current ROCE for Andlauer Healthcare Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Andlauer Healthcare Group .
What The Trend Of ROCE Can Tell Us
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 161% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
What We Can Learn From Andlauer Healthcare Group's ROCE
The main thing to remember is that Andlauer Healthcare Group has proven its ability to continually reinvest at respectable rates of return. However, over the last three years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
Andlauer Healthcare Group does have some risks though, and we've spotted 1 warning sign for Andlauer Healthcare Group that you might be interested in.