The Return Trends At Perma-Fix Environmental Services (NASDAQ:PESI) Look Promising
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Perma-Fix Environmental Services' (NASDAQ:PESI) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Perma-Fix Environmental Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = US$833k ÷ (US$79m - US$26m) (Based on the trailing twelve months to December 2023).
Thus, Perma-Fix Environmental Services has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 10%.
Check out our latest analysis for Perma-Fix Environmental Services
Above you can see how the current ROCE for Perma-Fix Environmental Services 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 analyst report for Perma-Fix Environmental Services .
What Does the ROCE Trend For Perma-Fix Environmental Services Tell Us?
Perma-Fix Environmental Services has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Perma-Fix Environmental Services is utilizing 47% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
What We Can Learn From Perma-Fix Environmental Services' ROCE
Long story short, we're delighted to see that Perma-Fix Environmental Services' reinvestment activities have paid off and the company is now profitable. And a remarkable 155% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
One more thing to note, we've identified 1 warning sign with Perma-Fix Environmental Services and understanding this should be part of your investment process.
While Perma-Fix Environmental Services isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
