Integer Holdings (NYSE:ITGR) Is Finding It Tricky To Allocate Its Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after we looked into Integer Holdings (NYSE:ITGR), the trends above didn't look too great.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Integer Holdings, this is the formula:

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

0.051 = US$132m ÷ (US$2.8b - US$198m) (Based on the trailing twelve months to July 2022).

Thus, Integer Holdings has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.3%.

Our analysis indicates that ITGR is potentially undervalued!

In the above chart we have measured Integer Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Integer Holdings.

What Can We Tell From Integer Holdings' ROCE Trend?

We are a bit worried about the trend of returns on capital at Integer Holdings. Unfortunately the returns on capital have diminished from the 6.5% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Integer Holdings becoming one if things continue as they have.

The Bottom Line On Integer Holdings' ROCE

In summary, it's unfortunate that Integer Holdings is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing: We've identified 3 warning signs with Integer Holdings (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Integer Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.