EOG Resources (NYSE:EOG) Could Become A Multi-Bagger
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at the ROCE trend of EOG Resources (NYSE:EOG) we really liked what we saw.
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 EOG Resources:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$9.9b ÷ (US$41b - US$5.5b) (Based on the trailing twelve months to December 2022).
Therefore, EOG Resources has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 21%.
See our latest analysis for EOG Resources
Above you can see how the current ROCE for EOG Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
We like the trends that we're seeing from EOG Resources. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 32%. So we're very much inspired by what we're seeing at EOG Resources thanks to its ability to profitably reinvest capital.
The Bottom Line On EOG Resources' ROCE
In summary, it's great to see that EOG Resources can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 27% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing to note, we've identified 1 warning sign with EOG Resources and understanding this should be part of your investment process.
EOG Resources is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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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