Be Wary Of Xvivo Perfusion (STO:XVIVO) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Xvivo Perfusion (STO:XVIVO), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Xvivo Perfusion, this is the formula:

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

0.0036 = kr5.2m ÷ (kr1.5b - kr105m) (Based on the trailing twelve months to December 2021).

Thus, Xvivo Perfusion has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.8%.

View our latest analysis for Xvivo Perfusion

Above you can see how the current ROCE for Xvivo Perfusion 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.

The Trend Of ROCE

When we looked at the ROCE trend at Xvivo Perfusion, we didn't gain much confidence. Around five years ago the returns on capital were 2.4%, but since then they've fallen to 0.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Xvivo Perfusion's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Xvivo Perfusion. And the stock has done incredibly well with a 198% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 2 warning signs for Xvivo Perfusion that we think you should be aware of.

While Xvivo Perfusion 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.