Yahoo Finance Returns On Capital Are Showing Encouraging Signs At STAAR Surgical (NASDAQ:STAA)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, STAAR Surgical (NASDAQ:STAA) looks quite promising in regards to its trends of return on capital.
Understanding 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. To calculate this metric for STAAR Surgical, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = US$30m ÷ (US$489m - US$65m) (Based on the trailing twelve months to December 2023).
Therefore, STAAR Surgical has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 9.6%.
Check out our latest analysis for STAAR Surgical
Above you can see how the current ROCE for STAAR Surgical 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 STAAR Surgical for free.
What The Trend Of ROCE Can Tell Us
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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 203%. So we're very much inspired by what we're seeing at STAAR Surgical thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, STAAR Surgical has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 5.6% to shareholders. So with that in mind, we think the stock deserves further research.
On a final note, we've found 1 warning sign for STAAR Surgical that we think you should be aware of.
While STAAR Surgical 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.
