Returns On Capital At Xvivo Perfusion (STO:XVIVO) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Xvivo Perfusion (STO:XVIVO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. 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)

0.019 = kr32m ÷ (kr1.8b - kr114m) (Based on the trailing twelve months to June 2023).

So, Xvivo Perfusion has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 9.6%.

See 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'd like to see what analysts are forecasting going forward, you should check out our free report for Xvivo Perfusion.

What Can We Tell From Xvivo Perfusion's ROCE Trend?

In terms of Xvivo Perfusion's historical ROCE trend, it doesn't exactly demand attention. The company has employed 211% more capital in the last five years, and the returns on that capital have remained stable at 1.9%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Xvivo Perfusion's ROCE

In conclusion, Xvivo Perfusion has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 67% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Xvivo Perfusion does have some risks though, and we've spotted 1 warning sign for Xvivo Perfusion that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.