Shareholders are optimistic that the value of IDEXX Laboratories (NASDAQ:IDXX) will multiply

If you are looking for a multi-bagger, there are a few things to look for. Ideally, a company will have two trends: first, a growing to return on the capital employed (ROCE) and secondly an increasing Crowd of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. Ergo, when we looked at the ROCE trends at IDEXX Laboratories (NASDAQ:IDXX), we liked what we saw.

What is return on capital employed (ROCE)?

Just to clarify in case you’re not sure, ROCE is a ratio that evaluates how much pre-tax profit (as a percentage) a company generates with the capital invested in its business. Analysts use this formula to calculate it for IDEXX Laboratories:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.47 = $1.1 billion ÷ ($3.4 billion – $957 million) (Based on the last twelve months to March 2024).

Therefore, IDEXX Laboratories has a ROCE of 47%. That’s a fantastic return, and not only that, it also exceeds the 10% average earned by companies in a similar industry.

Check out our latest analysis for IDEXX Laboratories

In the chart above, we have compared IDEXX Laboratories’ ROCE with past performance, but the future is arguably more important. If you want, you can see the analysts’ forecasts for IDEXX Laboratories for free.

So how is IDEXX Laboratories’ return on capital employed (ROCE) developing?

We would be quite happy with an ROE like IDEXX Laboratories. Over the last five years, ROE has remained relatively stable at around 47% and the company has invested 142% more capital into its operations. When you consider that ROE is an attractive 47%, this combination is actually quite attractive because it means the company can consistently deploy its money and generate these high returns. If IDEXX Laboratories can maintain this, we are very optimistic about the future.

As an aside, over the last five years, IDEXX Laboratories has reduced short-term liabilities to 29% of total assets. This eliminates some of the risks associated with operations as the company has fewer outstanding obligations to its suppliers and/or short-term creditors than before.

Our assessment of IDEXX Laboratories’ ROCE

In summary, we are pleased that IDEXX Laboratories has been able to increase its earnings through reinvestment with consistently high returns, as these are typical characteristics of a multibagger. And since the stock has risen sharply over the past five years, the market seems to expect this trend to continue. While investors seem to recognize these promising trends, we still believe the stock deserves further investigation.

The story goes on

On the other side of the ROCE we have to consider the valuation. That is why we have a FREE intrinsic value estimate for IDXX on our platform this is definitely worth a look.

If you want to see other companies that deliver high returns, check out our free A list of high-yielding companies with solid balance sheets can be found here.

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