NYSE:COP) and its trend of ROCE, we really liked what we saw.” data-reactid=”28″ type=”text”>If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 when we looked at ConocoPhillips (NYSE:COP) and its trend of ROCE, we really liked what we saw.
What is Return On Capital Employed (ROCE)?
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 ConocoPhillips, this is the formula:
(Based on the trailing twelve months to June 2020).” data-reactid=”36″ type=”text”>0.047 = US$2.8b ÷ (US$63b – US$4.1b) (Based on the trailing twelve months to June 2020).
report on analyst forecasts for the company.” data-reactid=”51″ type=”text”>In the above chart we have measured ConocoPhillips’ 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 report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
Even though ROCE is still low in absolute terms, it’s good to see it’s heading in the right direction. The figures show that over the last five years, returns on capital have grown by 69%. That’s not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, ConocoPhillips appears to been achieving more with less, since the business is using 43% less capital to run its operation. If this trend continues, the business might be getting more efficient but it’s shrinking in terms of total assets.
In a nutshell, we’re pleased to see that ConocoPhillips has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 12% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
4 warning signs facing ConocoPhillips that you might find interesting.” data-reactid=”56″ type=”text”>One more thing, we’ve spotted 4 warning signs facing ConocoPhillips that you might find interesting.
list here.” data-reactid=”57″ type=”text”>While ConocoPhillips may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.