Mammoth Energy Services (NASDAQ:TUSK) Is Finding It Tricky To Allocate Its Capital
What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Mammoth Energy Services (NASDAQ:TUSK), we weren't too hopeful.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mammoth Energy Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0075 = US$3.7m ÷ (US$731m - US$238m) (Based on the trailing twelve months to March 2023).
Therefore, Mammoth Energy Services has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 9.8%.
View our latest analysis for Mammoth Energy Services
In the above chart we have measured Mammoth Energy Services' 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.
What Can We Tell From Mammoth Energy Services' ROCE Trend?
The trend of ROCE at Mammoth Energy Services is showing some signs of weakness. To be more specific, today's ROCE was 28% five years ago but has since fallen to 0.7%. In addition to that, Mammoth Energy Services is now employing 23% less capital than it was five years ago. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.
The Bottom Line
In summary, it's unfortunate that Mammoth Energy Services is shrinking its capital base and also generating lower returns. This could explain why the stock has sunk a total of 90% in the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing, we've spotted 1 warning sign facing Mammoth Energy Services that you might find interesting.
While Mammoth Energy Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
