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Is Just Life Group (NZSE:JLG) Likely To Turn Things Around?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over Just Life Group's (NZSE:JLG) trend of ROCE, we liked what we saw.

Understanding 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. To calculate this metric for Just Life Group, this is the formula:

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

0.16 = NZ$4.2m ÷ (NZ$33m - NZ$6.8m) (Based on the trailing twelve months to June 2020).

Thus, Just Life Group has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Specialty Retail industry.

Check out our latest analysis for Just Life Group

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Historical performance is a great place to start when researching a stock so above you can see the gauge for Just Life Group's ROCE against it's prior returns. If you'd like to look at how Just Life Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Just Life Group's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 119% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Just Life Group's ROCE

In the end, Just Life Group has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 642% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 5 warning signs for Just Life Group that we think you should be aware of.

While Just Life Group 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. 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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