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There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Star Bulk Carriers (NASDAQ:SBLK) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Star Bulk Carriers is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$341m ÷ (US$4.1b - US$400m) (Based on the trailing twelve months to December 2024).
Thus, Star Bulk Carriers has an ROCE of 9.2%. Even though it's in line with the industry average of 9.4%, it's still a low return by itself.
See our latest analysis for Star Bulk Carriers
In the above chart we have measured Star Bulk Carriers' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Star Bulk Carriers .
The Trend Of ROCE
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 26%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line On Star Bulk Carriers' ROCE
All in all, it's terrific to see that Star Bulk Carriers is reaping the rewards from prior investments and is growing its capital base. And a remarkable 431% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Star Bulk Carriers can keep these trends up, it could have a bright future ahead.