Orbit Technologies (TLV:ORBI) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Orbit Technologies (TLV:ORBI) so let's look a bit deeper.

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 Orbit Technologies is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.11 = US$9.0m ÷ (US$106m - US$25m) (Based on the trailing twelve months to December 2022).

Therefore, Orbit Technologies has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Aerospace & Defense industry average it falls behind.

Check out our latest analysis for Orbit Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Orbit Technologies' ROCE against it's prior returns. If you'd like to look at how Orbit Technologies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Orbit Technologies' ROCE Trend?

Orbit Technologies has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. Not only that, but the company is utilizing 188% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Orbit Technologies has decreased current liabilities to 23% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Orbit Technologies' ROCE

To the delight of most shareholders, Orbit Technologies has now broken into profitability. And with a respectable 95% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Orbit Technologies can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Orbit Technologies (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.