Insulet (NASDAQ:PODD) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Insulet (NASDAQ:PODD) 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. Analysts use this formula to calculate it for Insulet:

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

0.033 = US$63m ÷ (US$2.3b - US$365m) (Based on the trailing twelve months to December 2022).

So, Insulet has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.9%.

View our latest analysis for Insulet

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.

What Can We Tell From Insulet's ROCE Trend?

Insulet has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 3.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Insulet is utilizing 158% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

In summary, it's great to see that Insulet has managed to break into profitability and is continuing to reinvest in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

One final note, you should learn about the 4 warning signs we've spotted with Insulet (including 1 which is significant) .

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.

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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.