Stock Analysis

Does Lincoln Educational Services (NASDAQ:LINC) Have The Makings Of A Multi-Bagger?

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NasdaqGS:LINC
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Lincoln Educational Services (NASDAQ:LINC) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Lincoln Educational Services, this is the formula:

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

0.074 = US$10.0m ÷ (US$206m - US$71m) (Based on the trailing twelve months to September 2020).

So, Lincoln Educational Services has an ROCE of 7.4%. On its own, that's a low figure but it's around the 7.8% average generated by the Consumer Services industry.

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roce
NasdaqGS:LINC Return on Capital Employed February 5th 2021

Above you can see how the current ROCE for Lincoln Educational Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lincoln Educational Services here for free.

So How Is Lincoln Educational Services' ROCE Trending?

Lincoln Educational Services' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 33% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Lincoln Educational Services' ROCE

As discussed above, Lincoln Educational Services appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 162% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Lincoln Educational Services, we've discovered 3 warning signs that you should be aware of.

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