Stock Analysis

Insulet (NASDAQ:PODD) Is Looking To Continue Growing Its Returns On Capital

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Insulet's (NASDAQ:PODD) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Insulet is:

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

0.039 = US$69m ÷ (US$2.0b - US$229m) (Based on the trailing twelve months to September 2021).

Therefore, Insulet has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.6%.

See our latest analysis for Insulet

NasdaqGS:PODD Return on Capital Employed November 8th 2021

Above you can see how the current ROCE for Insulet 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.

So How Is Insulet's ROCE Trending?

The fact that Insulet is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Insulet is utilizing 344% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Insulet has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 767% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Insulet can keep these trends up, it could have a bright future ahead.

Like most companies, Insulet does come with some risks, and we've found 2 warning signs that you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Insulet is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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