If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at Helix Energy Solutions Group (NYSE:HLX) so let's look a bit deeper.
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 Helix Energy Solutions Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.015 = US$33m ÷ (US$2.4b - US$218m) (Based on the trailing twelve months to March 2021).
Thus, Helix Energy Solutions Group has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 2.2%.
Above you can see how the current ROCE for Helix Energy Solutions Group 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 Helix Energy Solutions Group here for free.
What Can We Tell From Helix Energy Solutions Group's ROCE Trend?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, ROCE has grown 4,522% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From Helix Energy Solutions Group's ROCE
To sum it up, Helix Energy Solutions Group is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 41% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
If you want to continue researching Helix Energy Solutions Group, you might be interested to know about the 3 warning signs that our analysis has discovered.
While Helix Energy Solutions Group 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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