Many Would Be Jealous Of Poly Medicure's (NSE:POLYMED) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Poly Medicure (NSE:POLYMED) looks attractive right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Poly Medicure:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.23 = ₹1.3b ÷ (₹7.7b - ₹2.0b) (Based on the trailing twelve months to June 2020).

So, Poly Medicure has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 12%.

Check out our latest analysis for Poly Medicure

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Poly Medicure has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

It's hard not to be impressed by Poly Medicure's returns on capital. Over the past five years, ROCE has remained relatively flat at around 23% and the business has deployed 127% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Poly Medicure can keep this up, we'd be very optimistic about its future.

The Bottom Line On Poly Medicure's ROCE

In short, we'd argue Poly Medicure has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 200% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Poly Medicure looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether POLYMED is currently trading for a fair price.

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.

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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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