If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at ClearStream Energy Services (TSE:CSM), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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 ClearStream Energy Services:

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

0.016 = CA$2.7m ÷ (CA$252m - CA$81m) (Based on the trailing twelve months to June 2022).

So, ClearStream Energy Services has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 5.8%.

See our latest analysis for ClearStream Energy Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for ClearStream Energy Services' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ClearStream Energy Services, check out these free graphs here.

How Are Returns Trending?

On the surface, the trend of ROCE at ClearStream Energy Services doesn't inspire confidence. To be more specific, ROCE has fallen from 3.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for ClearStream Energy Services. However, despite the promising trends, the stock has fallen 67% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 4 warning signs with ClearStream Energy Services (at least 3 which don't sit too well with us) , and understanding them would certainly be useful.