The Returns On Capital At Solaris Oilfield Infrastructure (NYSE:SOI) Don't Inspire Confidence
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Solaris Oilfield Infrastructure (NYSE:SOI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Solaris Oilfield Infrastructure:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$58m ÷ (US$484m - US$51m) (Based on the trailing twelve months to June 2023).
So, Solaris Oilfield Infrastructure has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Energy Services industry.
See our latest analysis for Solaris Oilfield Infrastructure
Above you can see how the current ROCE for Solaris Oilfield Infrastructure compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Solaris Oilfield Infrastructure.
What Can We Tell From Solaris Oilfield Infrastructure's ROCE Trend?
When we looked at the ROCE trend at Solaris Oilfield Infrastructure, we didn't gain much confidence. To be more specific, ROCE has fallen from 19% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On Solaris Oilfield Infrastructure's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Solaris Oilfield Infrastructure is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 29% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
On a final note, we've found 2 warning signs for Solaris Oilfield Infrastructure that we think you should be aware of.
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.
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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.
