Pediatrix Medical Group's (NYSE:MD) Returns Have Hit A Wall
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Pediatrix Medical Group (NYSE:MD), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Pediatrix Medical Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.093 = US$190m ÷ (US$2.3b - US$284m) (Based on the trailing twelve months to March 2023).
Thus, Pediatrix Medical Group has an ROCE of 9.3%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.
Check out our latest analysis for Pediatrix Medical Group
In the above chart we have measured Pediatrix 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 report for Pediatrix Medical Group.
How Are Returns Trending?
We're a bit concerned with the trends, because the business is applying 63% less capital than it was five years ago and returns on that capital have stayed flat. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.
The Bottom Line
Overall, we're not ecstatic to see Pediatrix Medical Group reducing the amount of capital it employs in the business. And in the last five years, the stock has given away 68% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Pediatrix Medical Group does have some risks though, and we've spotted 2 warning signs for Pediatrix Medical Group that you might be interested in.
While Pediatrix Medical Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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