Integra LifeSciences (NASDAQ:IART) continued its acquisitory ways in its recently concluded third quarter. The medical technology company is a growth-by-acquisition story, and this quarter saw the purchase of Kinetikos Medical and the establishment of a direct sales force in Canada through the recently purchased Canada Microsurgical, its longtime distributor.

Revenues for the quarter were $116 million, a 68% increase from the third quarter of 2005. Net income was down 75% to $2.6 million, mainly on the incorporation of equity-based compensation and acquisition-related charges. For an apples-to-apples comparison, management provided adjusted non-GAAP figures, which show net income increasing 18.5% to $13.7 million, from an adjusted $11.5 million last quarter.

Unfortunately, no amount of adjustments can hide the simple fact that Integra is unable to create value for its shareholders. For the sake of reliability, I used fiscal 2005 figures to estimate that Integra is returning less than 12% on its invested capital including goodwill, and just under 15% excluding goodwill. Neither of these numbers includes a charge for issuing stock options.

Fools' focus should be on that 12%, because Integra is a serial acquirer, and goodwill is a natural byproduct of its business strategy. If my cost of capital for Integra is 12%, which would seem more than fair, then the company is not earning its cost of capital. When stock option expenses are included, the returns on capital are even worse.

Whenever a company earns less than its cost of capital, it destroys value. And if that company is growing, it destroys value that much faster. Integra seems to be doing both. I would recommend focusing on some of Integra's competitors, like Medtronic (NYSE:MDT) and Stryker (NYSE:SYK). They manage to operate with much higher returns on invested capital, which I calculate to be 17% and 22%, respectively.

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Fool contributor Matthew Crews welcomes your feedback anytime -- really! He has no financial position in any of the companies mentioned. The Motley Fool has a disclosure policy .