OneSpan's Surging Returns on Capital Signal a Turnaround Story

In the hunt for undervalued growth stocks, a soaring return on capital employed (ROCE) is a beacon that often catches the eye of savvy investors. For OneSpan (NASDAQ: OSPN), a provider of digital security and e-signature solutions, this beacon is now shining brightly. Despite a steep 51% share price decline over the past five years, the company's underlying profitability metrics tell a compelling story of efficiency and potential resurgence.

ROCE measures how effectively a company generates pre-tax profits from its capital base. OneSpan's ROCE has surged to an impressive 20%, calculated from a trailing twelve-month EBIT of $50 million against capital employed of $254 million. This performance not only represents a staggering 2,600% increase over five years but also dwarfs the software industry average of 7.4%.

"The most intriguing part of this story is the capital efficiency," noted Michael Thorne, a portfolio manager at Horizon Capital Advisors. "OneSpan has achieved this monumental ROCE growth without significantly increasing its capital employed. This indicates the company is harvesting substantial returns from past investments, likely in its cloud platform and SaaS transition. It's a classic sign of a business model hitting its stride."

The dramatic improvement suggests management's strategic shifts—moving from legacy hardware tokens to cloud-based software and services—are beginning to bear significant fruit. For value-oriented investors, the disconnect between collapsing shareholder returns and exploding operational returns presents a fascinating opportunity, provided the company's growth plans and balance sheet remain sound.

Analyst & Investor Commentary:

• Sarah Chen, Technology Analyst at Clearwater Research: "The ROCE trajectory is undeniably positive and suggests strong execution. The critical question for the bull case is sustainability. Can they maintain these high returns while eventually needing to reinvest for growth? The upcoming quarters will be key."
• David "Rick" Foster, Independent Investor & Former CFO: "This is what a operational turnaround looks like in the metrics. The market has punished this stock relentlessly, but the business itself is becoming profoundly more profitable. The valuation is starting to look disconnected from these fundamentals. It's on my deep-dive list."
• Janet Kowalski, Editor at 'The Skeptical Investor' Blog: "A 2,600% increase on a ratio? Let's not get carried away. This screams 'low base effect' from five years ago when they were likely barely profitable. A single strong year doesn't erase five years of shareholder pain. Where's the revenue growth to match this? I'll believe it when I see sustained free cash flow and not just a favorable accounting ratio."
• Marcus Rivera, Retail Investor: "Finally some good news! I've been holding OSPN through the downturn, believing in their security tech. This ROCE data is the first concrete sign that the strategy is working. It gives me confidence to hold, maybe even average down."

While OneSpan's ROCE story is powerful, investors are cautioned to consider it as one piece of the puzzle. The company still faces the competitive pressures of the cybersecurity market and must prove it can translate this capital efficiency into sustained revenue growth and shareholder value.