Returns On Capital Are Showing Encouraging Signs At Joint (NASDAQ:JYNT)
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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Joint (NASDAQ:JYNT) and its trend of ROCE, we really liked what we saw.
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 Joint:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$5.4m ÷ (US$66m - US$19m) (Based on the trailing twelve months to December 2020).
Therefore, Joint has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Healthcare industry.
View our latest analysis for Joint
Above you can see how the current ROCE for Joint 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
The fact that Joint is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. In addition to that, Joint is employing 82% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In Conclusion...
Long story short, we're delighted to see that Joint's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 1,229% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Joint (of which 1 is concerning!) that you should know about.
While Joint isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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