Can C.I. MedicalLtd (TYO:3540) Keep Up These Impressive Returns?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over C.I. MedicalLtd's (TYO:3540) trend of ROCE, 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. To calculate this metric for C.I. MedicalLtd, this is the formula:

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

0.26 = JP¥3.5b ÷ (JP¥17b - JP¥3.5b) (Based on the trailing twelve months to September 2020).

So, C.I. MedicalLtd has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Online Retail industry average of 17%.

Check out our latest analysis for C.I. MedicalLtd

Above you can see how the current ROCE for C.I. MedicalLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for C.I. MedicalLtd.

What Can We Tell From C.I. MedicalLtd's ROCE Trend?

In terms of C.I. MedicalLtd's history of ROCE, it's quite impressive. The company has consistently earned 26% for the last five years, and the capital employed within the business has risen 121% in that time. Now considering ROCE is an attractive 26%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In summary, we're delighted to see that C.I. MedicalLtd has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last three years the stock has declined 16%, 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 want to continue researching C.I. MedicalLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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