Returns Are Gaining Momentum At Allscripts Healthcare Solutions (NASDAQ:MDRX)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Allscripts Healthcare Solutions (NASDAQ:MDRX) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Allscripts Healthcare Solutions, this is the formula:

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

0.028 = US$54m ÷ (US$2.5b - US$567m) (Based on the trailing twelve months to September 2021).

Thus, Allscripts Healthcare Solutions has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Healthcare Services industry average of 6.7%.

See our latest analysis for Allscripts Healthcare Solutions

In the above chart we have measured Allscripts Healthcare Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Allscripts Healthcare Solutions here for free.

What Does the ROCE Trend For Allscripts Healthcare Solutions Tell Us?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. The figures show that over the last five years, returns on capital have grown by 68%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Allscripts Healthcare Solutions appears to been achieving more with less, since the business is using 40% less capital to run its operation. Allscripts Healthcare Solutions may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Key Takeaway

From what we've seen above, Allscripts Healthcare Solutions has managed to increase it's returns on capital all the while reducing it's capital base. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Allscripts Healthcare Solutions that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.