Sensus Healthcare (NASDAQ:SRTS) Could Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Sensus Healthcare's (NASDAQ:SRTS) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Sensus Healthcare, this is the formula:

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

0.30 = US$14m ÷ (US$56m - US$10m) (Based on the trailing twelve months to June 2022).

So, Sensus Healthcare has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

Check out the opportunities and risks within the US Medical Equipment industry.

In the above chart we have measured Sensus Healthcare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sensus Healthcare.

So How Is Sensus Healthcare's ROCE Trending?

We're delighted to see that Sensus Healthcare is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 30% which is a sight for sore eyes. In addition to that, Sensus Healthcare is employing 259% more capital than previously which is expected of a company that's 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Sensus Healthcare's ROCE

Long story short, we're delighted to see that Sensus Healthcare's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 100% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

Sensus Healthcare does have some risks, we noticed 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

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.