Envista Holdings' (NYSE:NVST) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 Envista Holdings (NYSE:NVST), we don't think it's current trends fit the mold of a multi-bagger.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Envista Holdings, this is the formula:

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

0.07 = US$359m ÷ (US$6.4b - US$1.3b) (Based on the trailing twelve months to September 2022).

Thus, Envista Holdings has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 11%.

Check out our latest analysis for Envista Holdings

Above you can see how the current ROCE for Envista Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Envista Holdings here for free.

So How Is Envista Holdings' ROCE Trending?

There hasn't been much to report for Envista Holdings' returns and its level of capital employed because both metrics have been steady for the past four years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Envista Holdings to be a multi-bagger going forward.

The Bottom Line On Envista Holdings' ROCE

In a nutshell, Envista Holdings has been trudging along with the same returns from the same amount of capital over the last four years. And investors may be recognizing these trends since the stock has only returned a total of 6.8% to shareholders over the last three years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing, we've spotted 2 warning signs facing Envista Holdings that you might find interesting.

While Envista Holdings 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.