Stock Analysis

Mohini Health & Hygiene (NSE:MHHL) Has More To Do To Multiply In Value Going Forward

NSEI:MHHL
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. In light of that, when we looked at Mohini Health & Hygiene (NSE:MHHL) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for Mohini Health & Hygiene:

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

0.14 = ₹143m ÷ (₹1.4b - ₹367m) (Based on the trailing twelve months to September 2022).

Therefore, Mohini Health & Hygiene has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 11% it's much better.

View our latest analysis for Mohini Health & Hygiene

roce
NSEI:MHHL Return on Capital Employed December 13th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mohini Health & Hygiene's ROCE against it's prior returns. If you're interested in investigating Mohini Health & Hygiene's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Mohini Health & Hygiene's ROCE Trend?

Things have been pretty stable at Mohini Health & Hygiene, with its capital employed and returns on that capital staying somewhat the same for the last four years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Mohini Health & Hygiene to be a multi-bagger going forward.

The Key Takeaway

In a nutshell, Mohini Health & Hygiene has been trudging along with the same returns from the same amount of capital over the last four years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 186% gain to shareholders who have held over the last three years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Mohini Health & Hygiene does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Mohini Health & Hygiene is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.