There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. In light of that, when we looked at Singapore Paincare Holdings (Catalist:FRQ) and its ROCE trend, we weren't exactly thrilled.
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. Analysts use this formula to calculate it for Singapore Paincare Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = S$2.8m ÷ (S$40m - S$8.7m) (Based on the trailing twelve months to December 2024).
So, Singapore Paincare Holdings has an ROCE of 8.9%. On its own, that's a low figure but it's around the 10% average generated by the Healthcare industry.
See our latest analysis for Singapore Paincare Holdings
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Singapore Paincare Holdings.
So How Is Singapore Paincare Holdings' ROCE Trending?
In terms of Singapore Paincare Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Key Takeaway
While returns have fallen for Singapore Paincare Holdings in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 50% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you want to know some of the risks facing Singapore Paincare Holdings we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.