We Think CorVel (NASDAQ:CRVL) Might Have The DNA Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of CorVel (NASDAQ:CRVL) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for CorVel, this is the formula:

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

0.37 = US$85m ÷ (US$394m - US$168m) (Based on the trailing twelve months to March 2023).

So, CorVel has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 9.5%.

See 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 want to delve into the historical earnings, revenue and cash flow of CorVel, check out these free graphs here.

What Does the ROCE Trend For CorVel Tell Us?

Investors would be pleased with what's happening at CorVel. Over the last five years, returns on capital employed have risen substantially to 37%. Basically the business is earning more per dollar of capital invested and in addition to that, 28% more capital is being employed now too. So we're very much inspired by what we're seeing at CorVel thanks to its ability to profitably reinvest capital.

On a side note, CorVel's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On CorVel's ROCE

To sum it up, CorVel 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.

If you'd like to know about the risks facing CorVel, we've discovered 1 warning sign that 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.