Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Having said that, from a first glance at Integra LifeSciences Holdings (NASDAQ:IART) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Integra LifeSciences Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.075 = US$254m ÷ (US$3.8b - US$377m) (Based on the trailing twelve months to June 2023).
So, Integra LifeSciences Holdings has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.4%.
Check out our latest analysis for Integra LifeSciences Holdings
In the above chart we have measured Integra LifeSciences Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Integra LifeSciences Holdings here for free.
What Does the ROCE Trend For Integra LifeSciences Holdings Tell Us?
There hasn't been much to report for Integra LifeSciences Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Integra LifeSciences Holdings doesn't end up being a multi-bagger in a few years time.
The Bottom Line
In a nutshell, Integra LifeSciences Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 40% in the last five years. Therefore based on the analysis done in this article, we don't think Integra LifeSciences Holdings has the makings of a multi-bagger.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Integra LifeSciences Holdings (of which 1 is a bit unpleasant!) that you should know about.
While Integra LifeSciences Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.