MyHealthChecked (LON:MHC) Could Become A Multi-Bagger

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of MyHealthChecked (LON:MHC) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 MyHealthChecked is:

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

0.20 = UK£1.8m ÷ (UK£11m - UK£2.6m) (Based on the trailing twelve months to December 2022).

So, MyHealthChecked has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 8.4%.

View our latest analysis for MyHealthChecked

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 MyHealthChecked has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From MyHealthChecked's ROCE Trend?

The fact that MyHealthChecked is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 20% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, MyHealthChecked is utilizing 196% more capital than it was five years ago. 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.

The Key Takeaway

To the delight of most shareholders, MyHealthChecked has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 79% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we found 3 warning signs for MyHealthChecked (1 is significant) you should be aware of.

MyHealthChecked is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.