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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Raffles Medical Group (SGX:BSL), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Raffles Medical Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = S$73m ÷ (S$1.5b - S$397m) (Based on the trailing twelve months to June 2024).
So, Raffles Medical Group has an ROCE of 6.5%. In absolute terms, that's a low return but it's around the Healthcare industry average of 7.7%.
See our latest analysis for Raffles Medical Group
In the above chart we have measured Raffles Medical Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Raffles Medical Group .
How Are Returns Trending?
Things have been pretty stable at Raffles Medical Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Raffles Medical Group in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Raffles Medical Group is paying out 57% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Bottom Line
We can conclude that in regards to Raffles Medical Group's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 2.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.