Returns On Capital At Integer Holdings (NYSE:ITGR) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Integer Holdings (NYSE:ITGR), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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 Integer Holdings:

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

0.066 = US$173m ÷ (US$2.8b - US$203m) (Based on the trailing twelve months to September 2023).

Therefore, Integer Holdings has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.3%.

Check out our latest analysis for Integer Holdings

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, you can check out the forecasts from the analysts covering Integer Holdings here for free.

What Does the ROCE Trend For Integer Holdings Tell Us?

There are better returns on capital out there than what we're seeing at Integer Holdings. Over the past five years, ROCE has remained relatively flat at around 6.6% and the business has deployed 21% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Integer Holdings' ROCE

In conclusion, Integer Holdings has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 28% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 1 warning sign for Integer Holdings you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.