Narayana Hrudayalaya (NSE:NH) Could Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at the ROCE trend of Narayana Hrudayalaya (NSE:NH) we really liked 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 Narayana Hrudayalaya:

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

0.21 = ₹9.4b ÷ (₹56b - ₹11b) (Based on the trailing twelve months to June 2024).

Therefore, Narayana Hrudayalaya has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 14%.

See our latest analysis for Narayana Hrudayalaya

In the above chart we have measured Narayana Hrudayalaya's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Narayana Hrudayalaya for free.

What Can We Tell From Narayana Hrudayalaya's ROCE Trend?

The trends we've noticed at Narayana Hrudayalaya are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 112%. So we're very much inspired by what we're seeing at Narayana Hrudayalaya thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Narayana Hrudayalaya has. And a remarkable 446% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Narayana Hrudayalaya does have some risks though, and we've spotted 1 warning sign for Narayana Hrudayalaya that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.