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There are a few key trends to look for if we want to identify the next multi-bagger. 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, Bonterra Energy (TSE:BNE) looks quite promising in regards to its trends of return on capital.
What Is 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. Analysts use this formula to calculate it for Bonterra Energy:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.061 = CA$56m ÷ (CA$982m - CA$64m) (Based on the trailing twelve months to September 2024).
Thus, Bonterra Energy has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.4%.
See our latest analysis for Bonterra Energy
In the above chart we have measured Bonterra Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bonterra Energy for free.
The Trend Of ROCE
Bonterra Energy is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 1,766% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On Bonterra Energy's ROCE
To sum it up, Bonterra Energy is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 14% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you'd like to know more about Bonterra Energy, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.
While Bonterra Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.