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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Helmerich & Payne (NYSE:HP) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Helmerich & Payne, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.081 = US$437m ÷ (US$5.8b - US$436m) (Based on the trailing twelve months to December 2024).
Thus, Helmerich & Payne has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Energy Services industry average of 9.7%.
See our latest analysis for Helmerich & Payne
In the above chart we have measured Helmerich & Payne'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 Helmerich & Payne for free.
So How Is Helmerich & Payne's ROCE Trending?
Helmerich & Payne is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 124% over the last five years. 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.
In Conclusion...
To bring it all together, Helmerich & Payne has done well to increase the returns it's generating from its capital employed. Given the stock has declined 26% 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.
Helmerich & Payne does have some risks though, and we've spotted 2 warning signs for Helmerich & Payne that you might be interested in.