Returns Are Gaining Momentum At Integra LifeSciences Holdings (NASDAQ:IART)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Integra LifeSciences Holdings (NASDAQ:IART) looks quite promising in regards to its trends of return on capital.
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. Analysts use this formula to calculate it for Integra LifeSciences Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.076 = US$273m ÷ (US$3.9b - US$321m) (Based on the trailing twelve months to December 2022).
So, Integra LifeSciences Holdings has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.9%.
Check out our latest analysis for Integra LifeSciences Holdings
Above you can see how the current ROCE for Integra LifeSciences Holdings 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 Integra LifeSciences Holdings here for free.
The Trend Of ROCE
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 25%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Integra LifeSciences Holdings has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.8% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Integra LifeSciences Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
While Integra LifeSciences Holdings 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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