Returns On Capital At OraSure Technologies (NASDAQ:OSUR) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at OraSure Technologies (NASDAQ:OSUR), it didn't seem to tick all of these boxes.

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. To calculate this metric for OraSure Technologies, this is the formula:

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

0.099 = US$40m ÷ (US$454m - US$46m) (Based on the trailing twelve months to June 2023).

So, OraSure Technologies has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Medical Equipment industry average of 9.0%.

Check out our latest analysis for OraSure Technologies

In the above chart we have measured OraSure Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering OraSure Technologies here for free.

How Are Returns Trending?

The returns on capital haven't changed much for OraSure Technologies in recent years. Over the past five years, ROCE has remained relatively flat at around 9.9% and the business has deployed 50% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On OraSure Technologies' ROCE

In summary, OraSure Technologies has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 56% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

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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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.