Returns On Capital Are Showing Encouraging Signs At Omnicell (NASDAQ:OMCL)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Omnicell (NASDAQ:OMCL) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Omnicell, this is the formula:

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

0.04 = US$71m ÷ (US$2.2b - US$377m) (Based on the trailing twelve months to September 2022).

So, Omnicell has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 11%.

Check out our latest analysis for Omnicell

In the above chart we have measured Omnicell's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Omnicell.

So How Is Omnicell's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 151%. So we're very much inspired by what we're seeing at Omnicell thanks to its ability to profitably reinvest capital.

What We Can Learn From Omnicell's ROCE

To sum it up, Omnicell has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 10% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 3 warning signs facing Omnicell that you might find interesting.

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.