What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Privia Health Group (NASDAQ:PRVA) and its ROCE trend, we weren't exactly thrilled.

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What Is Return On Capital Employed (ROCE)?

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 Privia Health Group is:

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

0.025 = US$17m ÷ (US$1.1b - US$449m) (Based on the trailing twelve months to December 2024).

So, Privia Health Group has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 10%.

See our latest analysis for Privia Health Group

Above you can see how the current ROCE for Privia Health Group 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 Privia Health Group .

What Can We Tell From Privia Health Group's ROCE Trend?

In terms of Privia Health Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 2.5% from 10% five years ago. However it looks like Privia Health Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, Privia Health Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 17% in the last three years. Therefore based on the analysis done in this article, we don't think Privia Health Group has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for Privia Health Group that we think you should be aware of.

While Privia Health Group 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.