OraSure Technologies (NASDAQ:OSUR) May Have Issues Allocating Its Capital

By
Simply Wall St
Published
November 10, 2021
NasdaqGS:OSUR
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at OraSure Technologies (NASDAQ:OSUR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. Analysts use this formula to calculate it for OraSure Technologies:

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

0.01 = US$4.1m ÷ (US$456m - US$54m) (Based on the trailing twelve months to September 2021).

So, OraSure Technologies has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.6%.

See our latest analysis for OraSure Technologies

roce
NasdaqGS:OSUR Return on Capital Employed November 11th 2021

Above you can see how the current ROCE for OraSure Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

When we looked at the ROCE trend at OraSure Technologies, we didn't gain much confidence. Around five years ago the returns on capital were 9.5%, but since then they've fallen to 1.0%. 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.

The Key Takeaway

While returns have fallen for OraSure Technologies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 16% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

OraSure Technologies does have some risks though, and we've spotted 1 warning sign for OraSure Technologies that you might be interested in.

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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