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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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, Tsakos Energy Navigation (NYSE:TEN) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Tsakos Energy Navigation, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.083 = US$271m ÷ (US$3.7b - US$436m) (Based on the trailing twelve months to September 2024).
Therefore, Tsakos Energy Navigation has an ROCE of 8.3%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 12%.
View our latest analysis for Tsakos Energy Navigation
In the above chart we have measured Tsakos Energy Navigation's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Tsakos Energy Navigation .
What The Trend Of ROCE Can Tell Us
Tsakos Energy Navigation 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 176% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
To sum it up, Tsakos Energy Navigation is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 14% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you'd like to know more about Tsakos Energy Navigation, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.