If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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 Pennant Group (NASDAQ:PNTG), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Pennant Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.057 = US$29m ÷ (US$578m - US$75m) (Based on the trailing twelve months to March 2024).
So, Pennant Group has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.
Above you can see how the current ROCE for Pennant Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Pennant Group for free.
What The Trend Of ROCE Can Tell Us
When we looked at the ROCE trend at Pennant Group, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.7% from 7.3% five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Key Takeaway
In summary, despite lower returns in the short term, we're encouraged to see that Pennant Group is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 28% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
If you'd like to know about the risks facing Pennant Group, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
次のマルチバッガーを探すときにどこから始めればいいのか分からない場合は、いくつかの主要なトレンドに注意を払う必要があります。通常、増加する資本投下利益率(ROCE)のトレンドとそれに伴う増加する資産ベースを確認することが求められます。これは、利益を増加する割合で再投資しているビジネスであることを示しています。しかし、数字を簡単に見てみると、Ameresco(NYSE:AMRC)は今後のマルチバッガーになる要素を持っていないと思われますが、その理由を見てみましょう。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。増え続ける売上高(revenue)はROCEのトレンドの中にあります。このように見ると、優れたビジネスモデルと豊富な収益性の高い再投資機会を持つ企業であることを示しています。しかし、Clearway Energy(NYSE:CWEN.A)を調査した結果、現在のトレンドが多倍化の形に合致していないと判断されました。NYSE:HD Return on Capital Employed 2024年4月10日使われている資本のリターン。これを見ると、優れたビジネスモデルと利益を生む投資機会がたくさんある会社であるということが通常である。しかし、Pennant Group (NASDAQ:PNTG)の調査の結果、現在の傾向がマルチバッガーに適したものではないと考えられます。