There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Chemed (NYSE:CHE), we liked what we saw.
We've discovered 1 warning sign about Chemed. View them for free.What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Chemed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$372m ÷ (US$1.7b - US$286m) (Based on the trailing twelve months to December 2024).
Thus, Chemed has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 10%.
View our latest analysis for Chemed
Above you can see how the current ROCE for Chemed compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Chemed .
How Are Returns Trending?
It's hard not to be impressed by Chemed's returns on capital. The company has consistently earned 27% for the last five years, and the capital employed within the business has risen 37% in that time. Now considering ROCE is an attractive 27%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.
What We Can Learn From Chemed's ROCE
Chemed has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 25% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
On a separate note, we've found 1 warning sign for Chemed you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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