Ensign Group (NASDAQ:ENSG) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Ensign Group (NASDAQ:ENSG) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Ensign Group, this is the formula:

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

0.091 = US$358m ÷ (US$4.7b - US$743m) (Based on the trailing twelve months to December 2024).

Thus, Ensign Group has an ROCE of 9.1%. On its own, that's a low figure but it's around the 10% average generated by the Healthcare industry.

Check out our latest analysis for Ensign Group

In the above chart we have measured Ensign Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Ensign Group .

So How Is Ensign Group's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.1%. The amount of capital employed has increased too, by 94%. So we're very much inspired by what we're seeing at Ensign Group thanks to its ability to profitably reinvest capital.

Our Take On Ensign Group's ROCE

To sum it up, Ensign Group 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Ensign Group looks impressive, no company is worth an infinite price. The intrinsic value infographic for ENSG helps visualize whether it is currently trading for a fair price.

While Ensign Group isn't earning the highest return, check out this free list of companies that are 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.