Here's What To Make Of Teleflex's (NYSE:TFX) Decelerating Rates Of Return

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Teleflex (NYSE:TFX) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Teleflex is:

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

0.087 = US$549m ÷ (US$6.9b - US$555m) (Based on the trailing twelve months to July 2023).

So, Teleflex has an ROCE of 8.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.8%.

Check out our latest analysis for Teleflex

Above you can see how the current ROCE for Teleflex compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Teleflex.

What Can We Tell From Teleflex's ROCE Trend?

Over the past five years, Teleflex's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Teleflex to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Teleflex has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 5.0% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Teleflex could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Teleflex 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.