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Returns On Capital Are Showing Encouraging Signs At Seanergy Maritime Holdings (NASDAQ:SHIP)

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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, Seanergy Maritime Holdings (NASDAQ:SHIP) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Seanergy Maritime Holdings, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.016 = US$5.1m ÷ (US$350m - US$31m) (Based on the trailing twelve months to March 2021).

Thus, Seanergy Maritime Holdings has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.2%.

View our latest analysis for Seanergy Maritime Holdings

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Above you can see how the current ROCE for Seanergy Maritime Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Seanergy Maritime Holdings here for free.

So How Is Seanergy Maritime Holdings' ROCE Trending?

We're delighted to see that Seanergy Maritime Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.6% which is a sight for sore eyes. In addition to that, Seanergy Maritime Holdings is employing 62% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Seanergy Maritime Holdings' ROCE

In summary, it's great to see that Seanergy Maritime Holdings has managed to break into profitability and is continuing to reinvest in its business. And since the stock has dived 100% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing: We've identified 3 warning signs with Seanergy Maritime Holdings (at least 2 which make us uncomfortable) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

This article by Simply Wall St is general in nature. 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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