Returns On Capital At Integra LifeSciences Holdings (NASDAQ:IART) Have Stalled
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Integra LifeSciences Holdings (NASDAQ:IART) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Integra LifeSciences Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = US$265m ÷ (US$3.7b - US$356m) (Based on the trailing twelve months to September 2023).
So, Integra LifeSciences Holdings has an ROCE of 7.8%. On its own, that's a low figure but it's around the 9.7% average generated by the Medical Equipment industry.
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 Can We Tell From Integra LifeSciences Holdings' ROCE Trend?
Things have been pretty stable at Integra LifeSciences Holdings, with its capital employed and returns on that capital staying somewhat the same for the last 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Integra LifeSciences Holdings to be a multi-bagger going forward.
The Bottom Line On Integra LifeSciences Holdings' ROCE
We can conclude that in regards to Integra LifeSciences Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 20% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Integra LifeSciences Holdings does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
