Return Trends At Lantheus Holdings (NASDAQ:LNTH) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Lantheus Holdings' (NASDAQ:LNTH) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Lantheus Holdings is:

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

0.14 = US$184m ÷ (US$1.5b - US$177m) (Based on the trailing twelve months to September 2023).

Therefore, Lantheus Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Medical Equipment industry.

See our latest analysis for Lantheus Holdings

Above you can see how the current ROCE for Lantheus Holdings 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 Lantheus Holdings.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 263% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Lantheus Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

In the end, Lantheus Holdings has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 423% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Lantheus Holdings does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While Lantheus Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.