Quipt Home Medical (TSE:QIPT) Is Doing The Right Things To Multiply Its Share Price
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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Quipt Home Medical (TSE:QIPT) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Quipt Home Medical, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = US$9.6m ÷ (US$242m - US$56m) (Based on the trailing twelve months to June 2023).
Thus, Quipt Home Medical has an ROCE of 5.2%. In absolute terms, that's a low return but it's around the Healthcare industry average of 6.3%.
See our latest analysis for Quipt Home Medical
In the above chart we have measured Quipt Home Medical'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 Quipt Home Medical.
The Trend Of ROCE
Quipt Home Medical has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Quipt Home Medical is utilizing 749% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
On a related note, the company's ratio of current liabilities to total assets has decreased to 23%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
The Key Takeaway
To the delight of most shareholders, Quipt Home Medical has now broken into profitability. And a remarkable 198% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Quipt Home Medical can keep these trends up, it could have a bright future ahead.
Quipt Home Medical does have some risks, we noticed 4 warning signs (and 1 which can't be ignored) we think you should know about.
While Quipt Home Medical may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
