Omega Flex, Inc.’s (NASDAQ:OFLX) Stock Has Shown Weakness Lately But Financial Prospects Look Decent: Is The Market Wrong?

editorial-team@simplywallst.com (Simply Wall St)

Tue, Apr 29, 2025, 3:23 AM 4 min read

It is hard to get excited after looking at Omega Flex’s (NASDAQ:OFLX) recent performance, when its stock has declined 26% over the past three months. However, the company’s fundamentals look pretty decent, and long-term financials are usually aligned with future market price movements. Specifically, we decided to study Omega Flex’s ROE in this article.

Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

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The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Omega Flex is:

22% = US$18m ÷ US$83m (Based on the trailing twelve months to December 2024).

The ‘return’ is the income the business earned over the last year. So, this means that for every $1 of its shareholder’s investments, the company generates a profit of $0.22.

View our latest analysis for Omega Flex

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don’t have the same features.

To begin with, Omega Flex seems to have a respectable ROE. Further, the company’s ROE compares quite favorably to the industry average of 14%. Despite this, Omega Flex’s five year net income growth was quite flat over the past five years. Based on this, we feel that there might be other reasons which haven’t been discussed so far in this article that could be hampering the company’s growth. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.

Next, on comparing with the industry net income growth, we found that Omega Flex’s reported growth was lower than the industry growth of 15% over the last few years, which is not something we like to see.