Yahoo Finance Centene (NYSE:CNC) Hasn't Managed To Accelerate Its Returns
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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after briefly looking over the numbers, we don't think Centene (NYSE:CNC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Centene:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = US$4.9b ÷ (US$83b - US$33b) (Based on the trailing twelve months to March 2024).
Thus, Centene has an ROCE of 9.7%. On its own, that's a low figure but it's around the 11% average generated by the Healthcare industry.
Check out our latest analysis for Centene
Above you can see how the current ROCE for Centene compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Centene .
What Can We Tell From Centene's ROCE Trend?
In terms of Centene's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.7% for the last five years, and the capital employed within the business has risen 144% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Centene's ROCE
In summary, Centene has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 29% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
Centene could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for CNC on our platform quite valuable.
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.
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