Geospace Technologies' (NASDAQ:GEOS) Returns On Capital Are Heading Higher

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Geospace Technologies (NASDAQ:GEOS) looks quite promising in regards to its trends of return on capital.

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 Geospace Technologies:

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

0.11 = US$16m ÷ (US$158m - US$15m) (Based on the trailing twelve months to March 2024).

Thus, Geospace Technologies has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Energy Services industry.

View our latest analysis for Geospace 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'd like to look at how Geospace Technologies has performed in the past in other metrics, you can view this free graph of Geospace Technologies' past earnings, revenue and cash flow.

The Trend Of ROCE

Like most people, we're pleased that Geospace Technologies is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 11% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 23%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

In Conclusion...

In a nutshell, we're pleased to see that Geospace Technologies has been able to generate higher returns from less capital. And since the stock has fallen 38% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Geospace Technologies, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Geospace Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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