If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends to look out for. In a perfect world, we’d like to see a company invest more capital into its business and, ideally, the returns generated from that capital increase as well. When you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we’ve identified some promising trends in ShaMaran Petroleum (CVE:SNM), so let’s take a closer look.
What is return on capital employed (ROCE)?
Just to clarify in case you’re not sure, ROCE is a ratio used to evaluate how much pre-tax profit (in percent) a company generates with the capital invested in its business. Analysts use this formula to calculate it for ShaMaran Petroleum:
Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.053 = $20 million ÷ ($397 million – $22 million) (Based on the last twelve months to June 2024).
Therefore, ShaMaran Petroleum has a ROCE of 5.3%. Ultimately, this is a low return and is below the industry average of 8.1% in the oil and gas sector.
Check out our latest analysis for ShaMaran Petroleum
In the chart above, we have compared ShaMaran Petroleum’s past ROCE return with past performance, but the future is arguably more important. If you want, you can see the forecasts of the analysts who are covering ShaMaran Petroleum for free.
What does the ROCE trend tell us for ShaMaran Petroleum?
ShaMaran Petroleum has not disappointed with its ROCE growth. The numbers show that ROCE has increased by 574% over the past five years while employing roughly the same amount of capital. So it’s likely that the company is now reaping the full benefits of its past investments as the capital employed hasn’t changed much. However, it’s worth looking into this in more detail because while it’s great that the company is more efficient, it could also mean that there’s a lack of areas to invest in internally for organic growth in the future.
The conclusion on ShaMaran Petroleum’s ROCE
As discussed above, ShaMaran Petroleum seems to be getting better at generating returns as capital employed has remained flat while earnings (before interest and taxes) have increased. Given that the stock has only returned 23% to shareholders over the past five years, the promising fundamentals may not yet be apparent to investors. With that in mind, we would take a closer look at this stock if it has other characteristics that could help it multiply over the long term.
ShaMaran Petroleum may look impressive, but no company is worth an infinite price. SNM’s intrinsic value infographic helps visualize whether the company is currently trading at a fair price.
For those who like to invest in solid companies, look at this free List of companies with solid balance sheets and high returns on equity.
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
