The Trend Of High Returns At Optex Systems Holdings (NASDAQ:OPXS) Has Us Very Interested

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Optex Systems Holdings (NASDAQ:OPXS) we really liked what we saw.

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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 Optex Systems Holdings is:

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

0.24 = US$5.2m ÷ (US$25m - US$3.4m) (Based on the trailing twelve months to December 2024).

So, Optex Systems Holdings has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 9.6%.

View our latest analysis for Optex Systems Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Optex Systems Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Optex Systems Holdings.

The Trend Of ROCE

Investors would be pleased with what's happening at Optex Systems Holdings. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 33%. So we're very much inspired by what we're seeing at Optex Systems Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Optex Systems Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 263% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Optex Systems Holdings (at least 1 which can't be ignored) , and understanding these would certainly be useful.

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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.