Clínica Baviera (BME:CBAV) Might Become A Compounding Machine

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Clínica Baviera (BME:CBAV), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Clínica Baviera:

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

0.33 = €46m ÷ (€175m - €35m) (Based on the trailing twelve months to September 2023).

Thus, Clínica Baviera has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 7.9%.

Check out our latest analysis for Clínica Baviera

Historical performance is a great place to start when researching a stock so above you can see the gauge for Clínica Baviera's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Clínica Baviera.

So How Is Clínica Baviera's ROCE Trending?

Clínica Baviera deserves to be commended in regards to it's returns. The company has consistently earned 33% for the last five years, and the capital employed within the business has risen 241% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Clínica Baviera can keep this up, we'd be very optimistic about its future.

The Bottom Line On Clínica Baviera's ROCE

In short, we'd argue Clínica Baviera 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 130% 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.

One more thing to note, we've identified 1 warning sign with Clínica Baviera and understanding it 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.

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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.