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There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Star Bulk Carriers (NASDAQ:SBLK) so let's look a bit deeper.
What Is 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)
0.081 = US$230m ÷ (US$3.2b - US$344m) (Based on the trailing twelve months to September 2023).
Thus, Star Bulk Carriers has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Shipping industry average of 8.9%.
See our latest analysis for Star Bulk Carriers
Above you can see how the current ROCE for Star Bulk Carriers compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Star Bulk Carriers Tell Us?
Star Bulk Carriers has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 69% in that same time. 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.
What We Can Learn From Star Bulk Carriers' ROCE
To bring it all together, Star Bulk Carriers has done well to increase the returns it's generating from its capital employed. And a remarkable 224% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing Star Bulk Carriers, we've discovered 2 warning signs that you should be aware of.