We Like Orion Energy Systems' (NASDAQ:OESX) Returns And Here's How They're Trending
NASDAQ:OESX) returns on capital, so let’s have a look.” data-reactid=”28″>Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Orion Energy Systems’ (NASDAQ:OESX) returns on capital, so let’s have a look.
Return On Capital Employed (ROCE): What is it?
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. To calculate this metric for Orion Energy Systems, this is the formula:
View our latest analysis for Orion Energy Systems ” data-reactid=”38″>View our latest analysis for Orion Energy Systems
report on analyst forecasts for the company.” data-reactid=”51″>Above you can see how the current ROCE for Orion Energy Systems compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Orion Energy Systems’ ROCE Trend?
Like most people, we’re pleased that Orion Energy Systems is now generating some pretax earnings. The company was generating losses five years ago, but now it’s turned around, earning 30% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 35% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 37% of the business, which is more than it was five years ago. It’s worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Bottom Line
From what we’ve seen above, Orion Energy Systems has managed to increase it’s returns on capital all the while reducing it’s capital base. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if Orion Energy Systems can keep these trends up, it could have a bright future ahead.
FREE intrinsic value estimation on our platform that is definitely worth checking out.” data-reactid=”57″>On the other side of ROCE, we have to consider valuation. That’s why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.
list of stocks with solid balance sheets that are also earning high returns on equity.” data-reactid=”58″>If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”59″>This article by Simply Wall St is general in nature. 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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