Will Orbit Technologies' (TLV:ORBI) Growth In ROCE Persist?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Orbit Technologies (TLV:ORBI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Orbit Technologies:

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

0.094 = US$3.7m ÷ (US$56m - US$17m) (Based on the trailing twelve months to September 2020).

So, Orbit Technologies has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Aerospace & Defense industry average of 7.2%.

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're interested in investigating Orbit Technologies' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Orbit Technologies' ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 32% more capital is being employed now too. So we're very much inspired by what we're seeing at Orbit Technologies thanks to its ability to profitably reinvest capital.

What We Can Learn From Orbit Technologies' ROCE

To sum it up, Orbit Technologies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 26% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Like most companies, Orbit Technologies does come with some risks, and we've found 3 warning signs that you should be aware of.

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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