Returns At Pediatrix Medical Group (NYSE:MD) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Pediatrix Medical Group (NYSE:MD) looks quite promising in regards to its trends of return on capital.

What Is 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 Pediatrix Medical Group:

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

0.097 = US$165m ÷ (US$2.1b - US$373m) (Based on the trailing twelve months to September 2024).

So, Pediatrix Medical Group has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 10%.

See our latest analysis for Pediatrix Medical Group

In the above chart we have measured Pediatrix Medical Group'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 analyst report for Pediatrix Medical Group .

So How Is Pediatrix Medical Group's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Pediatrix Medical Group. We found that the returns on capital employed over the last five years have risen by 36%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 55% less capital than it was five years ago. Pediatrix Medical Group 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

In a nutshell, we're pleased to see that Pediatrix Medical Group has been able to generate higher returns from less capital. Given the stock has declined 37% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 2 warning signs for Pediatrix Medical Group you'll probably want to know about.

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.