- United States
- Medical Equipment
Teleflex (NYSE:TFX) Has Some Way To Go To Become A Multi-Bagger
There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Teleflex is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = US$555m ÷ (US$6.9b - US$656m) (Based on the trailing twelve months to March 2022).
So, Teleflex has an ROCE of 8.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.7%.
View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
In terms of Teleflex's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.9% for the last five years, and the capital employed within the business has risen 30% in that time. 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 Teleflex's ROCE
In summary, Teleflex has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 20% 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.
If you're still interested in Teleflex it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.
While Teleflex isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're helping make it simple.
Find out whether Teleflex is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Teleflex Incorporated designs, develops, manufactures, and supplies single-use medical devices for common diagnostic and therapeutic procedures in critical care and surgical applications worldwide.
Excellent balance sheet and good value.