Stock Analysis

HCA Healthcare (NYSE:HCA) Is Reinvesting To Multiply In Value

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NYSE:HCA
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What trends should we look for it we want to identify stocks that can 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 ran our eye over HCA Healthcare's (NYSE:HCA) trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on HCA Healthcare is:

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

0.22 = US$9.4b ÷ (US$52b - US$9.0b) (Based on the trailing twelve months to June 2022).

So, HCA Healthcare has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

Check out our latest analysis for HCA Healthcare

roce
NYSE:HCA Return on Capital Employed September 5th 2022

Above you can see how the current ROCE for HCA Healthcare 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 HCA Healthcare here for free.

What Can We Tell From HCA Healthcare's ROCE Trend?

In terms of HCA Healthcare's history of ROCE, it's quite impressive. The company has employed 48% more capital in the last five years, and the returns on that capital have remained stable at 22%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

The Bottom Line

In short, we'd argue HCA Healthcare has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 171% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing HCA Healthcare, we've discovered 2 warning signs that you should be aware of.

HCA Healthcare is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether HCA Healthcare is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:HCA

HCA Healthcare

HCA Healthcare, Inc., through its subsidiaries, provides health care services company in the United States.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth2
Past Performance2
Financial Health2
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Undervalued with limited growth.