Cogstate (ASX:CGS) Could Become A Multi-Bagger

Yahoo

26-04-2025

Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Cogstate's (ASX:CGS) look very promising so lets take a look.
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For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Cogstate, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$9.7m ÷ (US$61m - US$13m) (Based on the trailing twelve months to December 2024).
So, Cogstate has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Healthcare Services industry average of 9.6%.
Check out our latest analysis for Cogstate
Above you can see how the current ROCE for Cogstate compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cogstate .
The fact that Cogstate is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 20% on its capital. Not only that, but the company is utilizing 165% more capital than before, but that's to be expected from a company trying to break into profitability. 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.
On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Cogstate has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
To the delight of most shareholders, Cogstate has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
While Cogstate looks impressive, no company is worth an infinite price. The intrinsic value infographic for CGS helps visualize whether it is currently trading for a fair price.
Cogstate is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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