NASDAQ:ARAY) so let’s look a bit deeper.” data-reactid=”28″>There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. With that in mind, we’ve noticed some promising trends at Accuray (NASDAQ:ARAY) so let’s look a bit deeper.
Return On Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Accuray is:
See our latest analysis for Accuray ” data-reactid=”38″>See our latest analysis for Accuray
here for free.” data-reactid=”51″>In the above chart we have a measured Accuray’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering Accuray here for free.
The Trend Of ROCE
Accuray has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. The company now earns 3.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Accuray has remained flat over the period. With no noticeable increase in capital employed, it’s worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you’re looking for high growth, you’ll want to see a business’s capital employed also increasing.
In summary, we’re delighted to see that Accuray has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 60% in the last five years, there could be a chance of a good investment here if the valuation makes sense. With that in mind, we believe the promising trends warrant this stock for further investigation.
4 warning signs in our investment analysis, and 1 of those is a bit concerning…” data-reactid=”56″>Accuray does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit concerning…
list of companies with solid balance sheets and high returns on equity.” data-reactid=”57″>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.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”58″>This article by Simply Wall St is general in nature. 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.