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Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of OSI Systems (NASDAQ:OSIS) looks decent, right now, so lets see what the trend of returns can tell us.
What Is 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. Analysts use this formula to calculate it for OSI Systems:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$201m ÷ (US$2.1b - US$704m) (Based on the trailing twelve months to December 2024).
Therefore, OSI Systems has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 10% it's much better.
Check out our latest analysis for OSI Systems
Above you can see how the current ROCE for OSI Systems compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for OSI Systems .
What Does the ROCE Trend For OSI Systems Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 55% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Key Takeaway
To sum it up, OSI Systems has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 200% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing: We've identified 2 warning signs with OSI Systems (at least 1 which is concerning) , and understanding them would certainly be useful.