Scorpio Tankers (NYSE:STNG) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Scorpio Tankers (NYSE:STNG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Scorpio Tankers is:

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

0.19 = US$706m ÷ (US$4.2b - US$408m) (Based on the trailing twelve months to March 2024).

So, Scorpio Tankers has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 13% generated by the Oil and Gas industry.

View our latest analysis for Scorpio Tankers

roce

Above you can see how the current ROCE for Scorpio Tankers 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 Scorpio Tankers for free.

So How Is Scorpio Tankers' ROCE Trending?

Scorpio Tankers' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,174% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To sum it up, Scorpio Tankers is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 221% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Scorpio Tankers can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Scorpio Tankers (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Scorpio Tankers 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com