What are the underlying trends we should look for in a company to find a Multi Bagger stock? First we want to identify a growing one return on the capital employed (ROCE) and then a constantly increasing one at the same time base of the capital employed. This shows us that this is a compounding machine capable of continuously reinvesting its profits in the business and generating higher returns. And given that, the trends we’re seeing Fulgent Genetics’ (NASDAQ:FLGT) are looking very promising, so let’s take a look.
Return on Capital Employed (ROCE): What is it?
Just to clarify if you’re unsure, ROCE is a metric used to evaluate how much pre-tax profit (as a percentage) a company makes on the capital invested in its business. The formula for this calculation on Fulgent Genetics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.40 = $534M ÷ ($1.5B – $128M) (Based on the last twelve months ended June 2022).
Hence, Fulgent Genetics has a ROCE of 40%. That’s a fantastic return, and not only that, it beats the 10% average that companies in a similar industry earn.
Check out our latest analysis for Fulgent Genetics
Above is how Fulgent Genetics’ current ROCE compares to historical returns on investments, but there’s only so much you can tell from the past. If you’d like, you can check out Fulgent Genetics’ analyst predictions here free.
What the ROCE trend can tell us
The trends we’ve noticed at Fulgent Genetics are pretty reassuring. The data shows that the return on investment has increased significantly to 40% over the past five years. Capital employed has also increased by 2,284%. The increasing return on an increasing amount of capital is common with multi-baggers and that’s why we’re impressed.
The final result
A company that can increase its returns on investments and consistently reinvest in itself is a highly sought-after trait, and that’s exactly what Fulgent Genetics has. And a remarkable 816% total return over the past five years tells us that investors expect even more good things to come. That being said, we still believe the promising fundamentals mean the company deserves further due diligence.
One more thing: we have identified ourselves 3 warning signs with Fulgent Genetics (at least 1 which doesn’t suit us that well) and these would certainly be useful to understand.
Fulgent Genetics isn’t the only stock producing great returns. If you want to see more check out ours free List of companies that generate high returns on equity with solid fundamentals.
Do you have any feedback about this article? Concerned about the content? Get in touch directly with us. Alternatively, send an email to the editorial team (at) simplywallst.com.
This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
The assessment is complex, but we help to simplify it.
find out if Fulfilling genetics may be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.
Check out the free analysis