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Enerflex (TSE:EFX) Has Some Way To Go To Become A Multi-Bagger

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  • ENRFF

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Enerflex (TSE:EFX) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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 Enerflex:

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

0.035 = CA$65m ÷ (CA$2.1b - CA$252m) (Based on the trailing twelve months to September 2021).

Therefore, Enerflex has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 5.8%.

Check out our latest analysis for Enerflex

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Above you can see how the current ROCE for Enerflex 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 Enerflex.

What Can We Tell From Enerflex's ROCE Trend?

Over the past five years, Enerflex's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Enerflex to be a multi-bagger going forward.

Our Take On Enerflex's ROCE

In a nutshell, Enerflex has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 34% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Enerflex could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Enerflex isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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