Returns Are Gaining Momentum At Surgery Partners (NASDAQ:SGRY)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Surgery Partners (NASDAQ:SGRY) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Surgery Partners:

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

0.062 = US$381m ÷ (US$6.6b - US$459m) (Based on the trailing twelve months to June 2023).

So, Surgery Partners has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.9%.

See our latest analysis for Surgery Partners

Above you can see how the current ROCE for Surgery Partners 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 Surgery Partners here for free.

What Can We Tell From Surgery Partners' ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.2%. The amount of capital employed has increased too, by 44%. So we're very much inspired by what we're seeing at Surgery Partners thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Surgery Partners is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 59% return over the last five years. 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.

On a separate note, we've found 1 warning sign for Surgery Partners you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.