GoodRx Holdings (NASDAQ:GDRX) May Have Issues Allocating Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think GoodRx Holdings (NASDAQ:GDRX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

We've discovered 1 warning sign about GoodRx Holdings. View them for free.

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

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. Analysts use this formula to calculate it for GoodRx Holdings:

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

0.079 = US$94m ÷ (US$1.3b - US$103m) (Based on the trailing twelve months to March 2025).

Therefore, GoodRx Holdings has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 5.0% generated by the Healthcare Services industry, it's much better.

See our latest analysis for GoodRx Holdings

Above you can see how the current ROCE for GoodRx Holdings 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 GoodRx Holdings for free.

The Trend Of ROCE

In terms of GoodRx Holdings' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 38%, but since then they've fallen to 7.9%. However it looks like GoodRx Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by GoodRx Holdings' reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 52% in the last three years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

GoodRx Holdings does have some risks though, and we've spotted 1 warning sign for GoodRx Holdings that you might be interested in.

While GoodRx Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.