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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Helix Energy Solutions Group (NYSE:HLX) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Helix Energy Solutions Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.004 = US$8.6m ÷ (US$2.4b - US$275m) (Based on the trailing twelve months to June 2021).
Therefore, Helix Energy Solutions Group has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 4.2%.
In the above chart we have measured Helix Energy Solutions Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Helix Energy Solutions Group's ROCE Trending?
We're delighted to see that Helix Energy Solutions Group is reaping rewards from its investments and has now broken into profitability. The company now earns 0.4% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Helix Energy Solutions Group has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
To sum it up, Helix Energy Solutions Group is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 54% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
On a separate note, we've found 3 warning signs for Helix Energy Solutions Group you'll probably want to know about.
While Helix Energy Solutions Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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