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Haemonetics (NYSE:HAE) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Haemonetics (NYSE:HAE) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Haemonetics:

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

0.071 = US$107m ÷ (US$1.8b - US$288m) (Based on the trailing twelve months to October 2021).

Therefore, Haemonetics has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Medical Equipment industry average of 8.2%.

See our latest analysis for Haemonetics

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In the above chart we have measured Haemonetics' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Haemonetics' ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. So we're very much inspired by what we're seeing at Haemonetics thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Haemonetics can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 40% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 4 warning signs for Haemonetics (1 is a bit unpleasant) you should be aware of.

While Haemonetics 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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