Returns On Capital At Sysmex (TSE:6869) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Sysmex's (TSE:6869) trend of ROCE, we liked what we saw.

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. To calculate this metric for Sysmex, this is the formula:

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

0.18 = JP¥91b ÷ (JP¥618b - JP¥107b) (Based on the trailing twelve months to September 2024).

Therefore, Sysmex has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Medical Equipment industry average of 11% it's much better.

See our latest analysis for Sysmex

In the above chart we have measured Sysmex's 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 Sysmex for free.

What Does the ROCE Trend For Sysmex Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 74% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, Sysmex has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 15% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Sysmex is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Sysmex could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 6869 on our platform quite valuable.

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.