Materialise (NASDAQ:MTLS) Will Want To Turn Around Its Return Trends
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Materialise (NASDAQ:MTLS), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Materialise is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.015 = €4.5m ÷ (€394m - €94m) (Based on the trailing twelve months to September 2023).
So, Materialise has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Software industry average of 7.7%.
See our latest analysis for Materialise
Above you can see how the current ROCE for Materialise compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Materialise here for free.
So How Is Materialise's ROCE Trending?
In terms of Materialise's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.5% from 2.8% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
In Conclusion...
While returns have fallen for Materialise in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 66% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
Materialise does have some risks though, and we've spotted 2 warning signs for Materialise that you might be interested in.
While Materialise 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.
