Meridian Bioscience (NASDAQ:VIVO) Might Become A Compounding Machine

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Meridian Bioscience (NASDAQ:VIVO) looks attractive right now, so lets see what the trend of returns can tell us.

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 Meridian Bioscience:

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

0.29 = US$112m ÷ (US$439m - US$50m) (Based on the trailing twelve months to March 2021).

Therefore, Meridian Bioscience has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 8.8%.

See our latest analysis for Meridian Bioscience

In the above chart we have measured Meridian Bioscience's 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 Meridian Bioscience here for free.

What Can We Tell From Meridian Bioscience's ROCE Trend?

It's hard not to be impressed by Meridian Bioscience's returns on capital. Over the past five years, ROCE has remained relatively flat at around 29% and the business has deployed 64% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Key Takeaway

In summary, we're delighted to see that Meridian Bioscience has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And given the stock has only risen 20% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you'd like to know more about Meridian Bioscience, we've spotted 4 warning signs, and 1 of them is a bit concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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