Shareholders Are Optimistic That Optex Systems Holdings (NASDAQ:OPXS) Will Multiply In Value
There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Ergo, when we looked at the ROCE trends at Optex Systems Holdings (NASDAQ:OPXS), we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Optex Systems Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = US$3.6m ÷ (US$22m - US$4.9m) (Based on the trailing twelve months to December 2023).
So, Optex Systems Holdings has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.
See our latest analysis for Optex Systems Holdings
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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Optex Systems Holdings.
What Does the ROCE Trend For Optex Systems Holdings Tell Us?
In terms of Optex Systems Holdings' history of ROCE, it's quite impressive. The company has consistently earned 21% for the last five years, and the capital employed within the business has risen 66% in that time. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
What We Can Learn From Optex Systems Holdings' ROCE
In summary, we're delighted to see that Optex Systems Holdings has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 238% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On a final note, we found 2 warning signs for Optex Systems Holdings (1 is significant) you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.
