Nasdaq-Listed Companies

We Like These Underlying Return On Capital Trends At Progyny (NASDAQ:PGNY)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Progyny's (NASDAQ:PGNY) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Progyny:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.18 = US$39m ÷ (US$312m - US$99m) (Based on the trailing twelve months to June 2021).

Thus, Progyny has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Healthcare industry average of 12% it's much better.

roceNasdaqGS:PGNY Return on Capital Employed October 11th 2021

In the above chart we have measured Progyny's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Progyny.

How Are Returns Trending?

The fact that Progyny is now generating some pre-tax profits from its prior investments is very encouraging. About three years ago the company was generating losses but things have turned around because it's now earning 18% on its capital. And unsurprisingly, like most companies trying to break into the black, Progyny is utilizing 1,406% more capital than it was three years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Progyny has decreased current liabilities to 32% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Progyny has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Overall, Progyny gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Progyny (of which 1 is a bit concerning!) that you should know about.

While Progyny isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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