Sonic Healthcare (ASX: SHL) is a company that has been attracting attention in the investment world. When considering potential multi-bagger stocks, it’s important to look at certain trends. One key trend is the return on capital employed (ROCE) of a business. ROCE measures the percentage of pre-tax income a company earns on the capital it has invested in its business. In the case of Sonic Healthcare, its ROCE stands at 9.1%, which is higher than the industry average of 7.2%.
Although Sonic Healthcare’s ROCE is better than average, it has remained relatively flat at 9.1% over the past five years. During this period, the company has increased its capital employed by 52%. This means that while Sonic Healthcare is investing more capital, it is not generating increasing returns on that capital. This lack of improvement in ROCE raises concerns about the company’s profitability and its ability to make high-return investments.
Despite this, the market seems to have positive expectations for Sonic Healthcare, as its stock has gained 42% over the last five years. However, unless the company can demonstrate a turnaround in its ROCE and capital deployment strategies, such optimism may be premature.
In conclusion, although Sonic Healthcare has been increasing its capital investment, its returns on that investment have not improved. This suggests that the company is not effectively deploying its funds into high-return opportunities. Investors should monitor Sonic Healthcare closely for any potential improvement in these trends before making any investment decisions.
Sources:
– Simply Wall St: [link]
– Analyst forecasts: [link]
– Warning signs for Sonic Healthcare: [link]
– Companies with solid balance sheets and high returns on equity: [link]
– Note: This article is for informational purposes only and does not constitute financial advice.
