If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. In light of that, when we looked at Omnicell (NASDAQ:OMCL) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Omnicell, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.00022 = US$337k ÷ (US$2.1b - US$596m) (Based on the trailing twelve months to December 2024).

So, Omnicell has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 10%.

Check out our latest analysis for Omnicell

Above you can see how the current ROCE for Omnicell 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 Omnicell for free.

The Trend Of ROCE

In terms of Omnicell's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.8% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Omnicell is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 56% in the last five years. Therefore based on the analysis done in this article, we don't think Omnicell has the makings of a multi-bagger.

One more thing to note, we've identified 1 warning sign with Omnicell and understanding it should be part of your investment process.

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.