Stock Analysis

A Look Into IDEXX Laboratories' (NASDAQ:IDXX) Impressive Returns On Capital

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NasdaqGS:IDXX
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So, when we ran our eye over IDEXX Laboratories' (NASDAQ:IDXX) trend of ROCE, we really 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. Analysts use this formula to calculate it for IDEXX Laboratories:

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

0.42 = US$638m ÷ (US$2.0b - US$527m) (Based on the trailing twelve months to September 2020).

Therefore, IDEXX Laboratories has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 9.9% earned by companies in a similar industry.

Check out our latest analysis for IDEXX Laboratories

roce
NasdaqGS:IDXX Return on Capital Employed January 31st 2021

In the above chart we have measured IDEXX Laboratories' 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 IDEXX Laboratories here for free.

What The Trend Of ROCE Can Tell Us

IDEXX Laboratories deserves to be commended in regards to it's returns. The company has employed 133% more capital in the last five years, and the returns on that capital have remained stable at 42%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, IDEXX Laboratories has done well to reduce current liabilities to 26% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On IDEXX Laboratories' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 574% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing IDEXX Laboratories, we've discovered 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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What are the risks and opportunities for IDEXX Laboratories?

IDEXX Laboratories, Inc. develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets worldwide.

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Rewards

  • Earnings are forecast to grow 11.99% per year

Risks

  • Has a high level of debt

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IDEXX Laboratories

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