Returns On Capital At LeMaitre Vascular (NASDAQ:LMAT) Paint A Concerning Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. In light of that, when we looked at LeMaitre Vascular (NASDAQ:LMAT) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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 LeMaitre Vascular, this is the formula:

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

0.10 = US$31m ÷ (US$326m - US$26m) (Based on the trailing twelve months to June 2023).

So, LeMaitre Vascular has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.4% generated by the Medical Equipment industry.

View our latest analysis for LeMaitre Vascular

Above you can see how the current ROCE for LeMaitre Vascular 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 LeMaitre Vascular.

What Can We Tell From LeMaitre Vascular's ROCE Trend?

In terms of LeMaitre Vascular's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 18%, but since then they've fallen to 10%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On LeMaitre Vascular's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that LeMaitre Vascular is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 78% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

While LeMaitre Vascular doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While LeMaitre Vascular 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.