OT Logistics (WSE:OTS) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, OT Logistics (WSE:OTS) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for OT Logistics, this is the formula:

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

0.10 = zł55m ÷ (zł698m - zł164m) (Based on the trailing twelve months to September 2022).

Therefore, OT Logistics has an ROCE of 10%. In isolation, that's a pretty standard return but against the Shipping industry average of 14%, it's not as good.

View our latest analysis for OT Logistics

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

What Does the ROCE Trend For OT Logistics Tell Us?

We're pretty happy with how the ROCE has been trending at OT Logistics. We found that the returns on capital employed over the last five years have risen by 3,967%. The company is now earning zł0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 42% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In the end, OT Logistics has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 44% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for OT Logistics (of which 1 is concerning!) that you should know about.

While OT Logistics 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.