Capital Investments At Omega Flex (NASDAQ:OFLX) Point To A Promising Future
What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Omega Flex's (NASDAQ:OFLX) trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Omega Flex is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.40 = US$31m ÷ (US$94m - US$17m) (Based on the trailing twelve months to March 2023).
So, Omega Flex has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
See our latest analysis for Omega Flex
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Omega Flex's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Omega Flex Tell Us?
It's hard not to be impressed by Omega Flex's returns on capital. The company has consistently earned 40% for the last five years, and the capital employed within the business has risen 23% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Omega Flex can keep this up, we'd be very optimistic about its future.
The Bottom Line
In short, we'd argue Omega Flex has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And given the stock has only risen 9.7% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Omega Flex is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
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