Yahoo Finance Trends At Fisher & Paykel Healthcare (NZSE:FPH) Point To A Promising Future
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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Fisher & Paykel Healthcare (NZSE:FPH), we liked what we saw.
What is 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. Analysts use this formula to calculate it for Fisher & Paykel Healthcare:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.40 = NZ$523m ÷ (NZ$1.6b - NZ$336m) (Based on the trailing twelve months to September 2020).
Thus, Fisher & Paykel Healthcare has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 9.6%.
View our latest analysis for Fisher & Paykel Healthcare
Above you can see how the current ROCE for Fisher & Paykel Healthcare 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 report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
We'd be pretty happy with returns on capital like Fisher & Paykel Healthcare. The company has consistently earned 40% for the last five years, and the capital employed within the business has risen 150% in that time. Now considering ROCE is an attractive 40%, 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 Fisher & Paykel Healthcare's ROCE
In short, we'd argue Fisher & Paykel Healthcare has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 345% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
One more thing to note, we've identified 1 warning sign with Fisher & Paykel Healthcare and understanding this should be part of your investment process.
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.
This article by Simply Wall St is general in nature. 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.
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