Yahoo Finance The Return Trends At Merit Medical Systems (NASDAQ:MMSI) Look Promising
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Merit Medical Systems (NASDAQ:MMSI) so let's look a bit deeper.
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 Merit Medical Systems, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.064 = US$136m ÷ (US$2.3b - US$183m) (Based on the trailing twelve months to March 2024).
Thus, Merit Medical Systems has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10%.
See our latest analysis for Merit Medical Systems
In the above chart we have measured Merit Medical Systems' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Merit Medical Systems .
The Trend Of ROCE
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.4%. The amount of capital employed has increased too, by 42%. So we're very much inspired by what we're seeing at Merit Medical Systems thanks to its ability to profitably reinvest capital.
What We Can Learn From Merit Medical Systems' ROCE
All in all, it's terrific to see that Merit Medical Systems is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for MMSI on our platform that is definitely worth checking out.
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.
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