Yahoo Finance Investors Will Want Pulse Oil's (CVE:PUL) Growth In ROCE To Persist
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Pulse Oil (CVE:PUL) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Pulse Oil:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = CA$575k ÷ (CA$31m - CA$1.8m) (Based on the trailing twelve months to March 2023).
Thus, Pulse Oil has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.
Check out our latest analysis for Pulse Oil
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Pulse Oil's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Pulse Oil Tell Us?
We're delighted to see that Pulse Oil is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. In addition to that, Pulse Oil is employing 198% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line
To the delight of most shareholders, Pulse Oil has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 84% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
Pulse Oil does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those are concerning...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
