Yahoo Finance Allscripts Healthcare Solutions (NASDAQ:MDRX) Might Have The Makings Of A Multi-Bagger
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Allscripts Healthcare Solutions' (NASDAQ:MDRX) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What is it?
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 Allscripts Healthcare Solutions:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = US$88m ÷ (US$2.4b - US$647m) (Based on the trailing twelve months to March 2022).
Thus, Allscripts Healthcare Solutions has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Healthcare Services industry average of 8.1%.
Check out our latest analysis for Allscripts Healthcare Solutions
In the above chart we have measured Allscripts Healthcare Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
While the ROCE is still rather low for Allscripts Healthcare Solutions, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 141%. The company is now earning US$0.05 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 42% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
The Bottom Line
In summary, it's great to see that Allscripts Healthcare Solutions has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 17% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing, we've spotted 3 warning signs facing Allscripts Healthcare Solutions that you might find interesting.
While Allscripts Healthcare Solutions may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
