Omnicell (NASDAQ:OMCL) May Have Issues Allocating Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Omnicell (NASDAQ:OMCL) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Omnicell is:

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

0.0081 = US$13m ÷ (US$2.2b - US$608m) (Based on the trailing twelve months to March 2025).

Therefore, Omnicell has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 11%.

Check out our latest analysis for Omnicell

Above you can see how the current ROCE for Omnicell compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Omnicell for free.

How Are Returns Trending?

In terms of Omnicell's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.8% from 8.3% five years ago. However it looks like Omnicell might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Omnicell's ROCE

Bringing it all together, while we're somewhat encouraged by Omnicell's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 60% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Omnicell has the makings of a multi-bagger.

Like most companies, Omnicell does come with some risks, and we've found 1 warning sign that you should be aware of.

While Omnicell isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.