Innovex International (NYSE:INVX) Is Reinvesting At Lower Rates Of Return
If you're looking for a multi-bagger, there's a few things to keep an eye out 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Innovex International (NYSE:INVX) and its ROCE trend, we weren't exactly thrilled.
What Is 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. Analysts use this formula to calculate it for Innovex International:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$117m ÷ (US$1.3b - US$149m) (Based on the trailing twelve months to September 2025).
Thus, Innovex International has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 8.8% it's much better.
Check out our latest analysis for Innovex International
Above you can see how the current ROCE for Innovex International 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 Innovex International for free.
The Trend Of ROCE
On the surface, the trend of ROCE at Innovex International doesn't inspire confidence. To be more specific, ROCE has fallen from 20% over the last three years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Innovex International's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Innovex International is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 53% to shareholders over the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
If you'd like to know about the risks facing Innovex International, we've discovered 1 warning sign that you should be aware of.
While Innovex International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.