We Like These Underlying Return On Capital Trends At Eagle Bulk Shipping (NYSE:EGLE)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 when we looked at Eagle Bulk Shipping (NYSE:EGLE) and its trend of ROCE, 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 Eagle Bulk Shipping:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = US$183m ÷ (US$1.2b - US$121m) (Based on the trailing twelve months to March 2023).
Therefore, Eagle Bulk Shipping has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the Shipping industry.
View our latest analysis for Eagle Bulk Shipping
Above you can see how the current ROCE for Eagle Bulk Shipping 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.
What Can We Tell From Eagle Bulk Shipping's ROCE Trend?
Investors would be pleased with what's happening at Eagle Bulk Shipping. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 40%. So we're very much inspired by what we're seeing at Eagle Bulk Shipping thanks to its ability to profitably reinvest capital.
The Bottom Line On Eagle Bulk Shipping's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Eagle Bulk Shipping has. Considering the stock has delivered 30% 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: We've identified 3 warning signs with Eagle Bulk Shipping (at least 1 which is potentially serious) , and understanding them would certainly be useful.
While Eagle Bulk Shipping 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.
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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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