Shareholders Are Optimistic That CorVel (NASDAQ:CRVL) Will Multiply In Value

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at CorVel (NASDAQ:CRVL), we liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CorVel is:

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

0.35 = US$95m ÷ (US$455m - US$184m) (Based on the trailing twelve months to March 2024).

Therefore, CorVel has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 11%.

Check out our latest analysis for CorVel

Historical performance is a great place to start when researching a stock so above you can see the gauge for CorVel's ROCE against it's prior returns. If you'd like to look at how CorVel has performed in the past in other metrics, you can view this free graph of CorVel's past earnings, revenue and cash flow.

What Does the ROCE Trend For CorVel Tell Us?

CorVel deserves to be commended in regards to it's returns. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 35%. Now considering ROCE is an attractive 35%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If CorVel can keep this up, we'd be very optimistic about its future.

On a side note, CorVel's current liabilities are still rather high at 41% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has done incredibly well with a 268% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for CorVel that we think you should be aware of.

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.

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