GE HealthCare Technologies (NASDAQ:GEHC) Has Some Way To Go To Become A Multi-Bagger

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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 GE HealthCare Technologies’ (NASDAQ:GEHC) trend of ROCE, we liked what we saw.

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. The formula for this calculation on GE HealthCare Technologies is:

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

0.12 = US$2.9b ÷ (US$32b – US$8.9b) (Based on the trailing twelve months to March 2024).

Thus, GE HealthCare Technologies has an ROCE of 12%. On its own, that’s a standard return, however it’s much better than the 10% generated by the Medical Equipment industry.

Check out our latest analysis for GE HealthCare Technologies

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Above you can see how the current ROCE for GE HealthCare Technologies 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 GE HealthCare Technologies for free.

So How Is GE HealthCare Technologies’ ROCE Trending?

While the current returns on capital are decent, they haven’t changed much. The company has employed 29% more capital in the last three years, and the returns on that capital have remained stable at 12%. 12% is a pretty standard return, and it provides some comfort knowing that GE HealthCare Technologies has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From GE HealthCare Technologies’ ROCE

In the end, GE HealthCare Technologies has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 0.7% over the last year, we’d suspect the market is beginning to recognize these trends. That’s why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

GE HealthCare Technologies does have some risks though, and we’ve spotted 1 warning sign for GE HealthCare Technologies that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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