Yahoo Finance There's Been No Shortage Of Growth Recently For Geospace Technologies' (NASDAQ:GEOS) Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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, Geospace Technologies (NASDAQ:GEOS) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Geospace Technologies, this is the formula:
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%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 12%.
View our latest analysis for Geospace Technologies
Historical performance is a great place to start when researching a stock so above you can see the gauge for Geospace Technologies' ROCE against it's prior returns. 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.
What Can We Tell From Geospace Technologies' ROCE Trend?
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 summary, it's great to see that Geospace Technologies has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 42% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you'd like to know about the risks facing Geospace Technologies, we've discovered 1 warning sign that you should be aware of.
While Geospace Technologies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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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