The Return Trends At OPNET Technologies (GTSM:8034) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, OPNET Technologies (GTSM:8034) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for OPNET Technologies:

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

0.0075 = NT$4.8m ÷ (NT$732m - NT$86m) (Based on the trailing twelve months to December 2020).

So, OPNET Technologies has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 8.0%.

View our latest analysis for OPNET Technologies

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

What Can We Tell From OPNET Technologies' ROCE Trend?

We're delighted to see that OPNET Technologies is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.7% on its capital. Not only that, but the company is utilizing 47% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

Overall, OPNET Technologies gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 214% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

OPNET Technologies does have some risks though, and we've spotted 2 warning signs for OPNET Technologies that you might be interested in.

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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