Yahoo Finance Penumbra (NYSE:PEN) Has Some Way To Go To Become A Multi-Bagger
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Penumbra (NYSE:PEN), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Penumbra:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.067 = US$96m ÷ (US$1.6b - US$153m) (Based on the trailing twelve months to March 2024).
Thus, Penumbra has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 10%.
View our latest analysis for Penumbra
In the above chart we have measured Penumbra's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Penumbra .
What The Trend Of ROCE Can Tell Us
There are better returns on capital out there than what we're seeing at Penumbra. Over the past five years, ROCE has remained relatively flat at around 6.7% and the business has deployed 186% 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.
In Conclusion...
In conclusion, Penumbra has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 5.3% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you're still interested in Penumbra it's worth checking out our FREE intrinsic value approximation for PEN to see if it's trading at an attractive price in other respects.
While Penumbra isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
