Why We Like The Returns At Eagle Bulk Shipping (NASDAQ:EGLE)
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Eagle Bulk Shipping's (NASDAQ:EGLE) returns on capital, so let's have a look.
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. To calculate this metric for Eagle Bulk Shipping, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$312m ÷ (US$1.3b - US$136m) (Based on the trailing twelve months to September 2022).
So, Eagle Bulk Shipping has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Shipping industry average of 17%.
Check out our latest analysis for Eagle Bulk Shipping
In the above chart we have measured Eagle Bulk Shipping's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Eagle Bulk Shipping.
What The Trend Of ROCE Can Tell Us
Eagle Bulk Shipping has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 28% which is a sight for sore eyes. In addition to that, Eagle Bulk Shipping is employing 41% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Eagle Bulk Shipping's ROCE
Long story short, we're delighted to see that Eagle Bulk Shipping's reinvestment activities have paid off and the company is now profitable. And with a respectable 95% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Eagle Bulk Shipping can keep these trends up, it could have a bright future ahead.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Eagle Bulk Shipping (of which 1 can't be ignored!) that you should know about.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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
