Why We Like The Returns At Fulgent Genetics (NASDAQ:FLGT)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Fulgent Genetics (NASDAQ:FLGT) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Fulgent Genetics:

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

0.29 = US$375m ÷ (US$1.4b - US$103m) (Based on the trailing twelve months to September 2022).

So, Fulgent Genetics has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 10%.

See our latest analysis for Fulgent Genetics

Above you can see how the current ROCE for Fulgent Genetics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Fulgent Genetics has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 29% which is a sight for sore eyes. Not only that, but the company is utilizing 2,247% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that Fulgent Genetics' reinvestment activities have paid off and the company is now profitable. And a remarkable 550% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Fulgent Genetics (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.