We're Watching These Trends At Medica Group (LON:MGP)

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. That's why when we briefly looked at Medica Group's (LON:MGP) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for Medica Group:

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

0.14 = UK£6.9m ÷ (UK£53m - UK£3.2m) (Based on the trailing twelve months to June 2020).

So, Medica Group has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Healthcare industry.

View our latest analysis for Medica Group

Above you can see how the current ROCE for Medica Group 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 Does the ROCE Trend For Medica Group Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 72% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Medica Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Medica Group's ROCE

To sum it up, Medica Group has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last three years the stock has declined 43%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

If you'd like to know about the risks facing Medica Group, we've discovered 1 warning sign that you should be aware of.

While Medica Group 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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