We Think Narayana Hrudayalaya (NSE:NH) Might Have The DNA Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Narayana Hrudayalaya (NSE:NH) we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Narayana Hrudayalaya is:

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

0.26 = ₹8.3b ÷ (₹42b - ₹9.9b) (Based on the trailing twelve months to June 2023).

So, Narayana Hrudayalaya has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 13%.

View 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 here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Narayana Hrudayalaya. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 57%. So we're very much inspired by what we're seeing at Narayana Hrudayalaya thanks to its ability to profitably reinvest capital.

Our Take On Narayana Hrudayalaya's ROCE

To sum it up, Narayana Hrudayalaya has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

Narayana Hrudayalaya 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.