If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Carl Zeiss Meditec (ETR:AFX), we don't think it's current trends fit the mold of a multi-bagger.

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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. The formula for this calculation on Carl Zeiss Meditec is:

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

0.061 = €172m ÷ (€3.4b - €569m) (Based on the trailing twelve months to December 2024).

Therefore, Carl Zeiss Meditec has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 7.8%.

Check out our latest analysis for Carl Zeiss Meditec

In the above chart we have measured Carl Zeiss Meditec's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Carl Zeiss Meditec for free.

What Does the ROCE Trend For Carl Zeiss Meditec Tell Us?

On the surface, the trend of ROCE at Carl Zeiss Meditec doesn't inspire confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 6.1%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.

In Conclusion...

In summary, Carl Zeiss Meditec is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 32% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Carl Zeiss Meditec has the makings of a multi-bagger.