Here's What's Concerning About U.S. Physical Therapy's (NYSE:USPH) Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at U.S. Physical Therapy (NYSE:USPH) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for U.S. Physical Therapy:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = US$67m ÷ (US$1.0b - US$103m) (Based on the trailing twelve months to March 2024).
Therefore, U.S. Physical Therapy has an ROCE of 7.3%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 11%.
Check out our latest analysis for U.S. Physical Therapy
Above you can see how the current ROCE for U.S. Physical Therapy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering U.S. Physical Therapy for free.
What The Trend Of ROCE Can Tell Us
In terms of U.S. Physical Therapy's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.3% from 14% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
To conclude, we've found that U.S. Physical Therapy is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
U.S. Physical Therapy does have some risks though, and we've spotted 5 warning signs for U.S. Physical Therapy that you might be interested in.
While U.S. Physical Therapy 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com