Here's What To Make Of Orbit Garant Drilling's (TSE:OGD) Decelerating Rates Of Return
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Although, when we looked at Orbit Garant Drilling (TSE:OGD), it didn't seem to tick all of these boxes.
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. Analysts use this formula to calculate it for Orbit Garant Drilling:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.043 = CA$4.2m ÷ (CA$132m - CA$34m) (Based on the trailing twelve months to September 2023).
Therefore, Orbit Garant Drilling has an ROCE of 4.3%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 2.4%.
View our latest analysis for Orbit Garant Drilling
Above you can see how the current ROCE for Orbit Garant Drilling compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Orbit Garant Drilling.
So How Is Orbit Garant Drilling's ROCE Trending?
Things have been pretty stable at Orbit Garant Drilling, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Orbit Garant Drilling to be a multi-bagger going forward.
The Bottom Line On Orbit Garant Drilling's ROCE
In a nutshell, Orbit Garant Drilling has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 64% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
Orbit Garant Drilling does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.
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.
