Returns On Capital At LeMaitre Vascular (NASDAQ:LMAT) Paint A Concerning Picture
What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at LeMaitre Vascular (NASDAQ:LMAT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for LeMaitre Vascular:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$30m ÷ (US$310m - US$25m) (Based on the trailing twelve months to December 2022).
So, LeMaitre Vascular has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 9.9%.
Check out our latest analysis for LeMaitre Vascular
Above you can see how the current ROCE for LeMaitre Vascular compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is LeMaitre Vascular's ROCE Trending?
When we looked at the ROCE trend at LeMaitre Vascular, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 10% from 19% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
In summary, LeMaitre Vascular is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 37% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
On a separate note, we've found 1 warning sign for LeMaitre Vascular you'll probably want to know about.
While LeMaitre Vascular 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.
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