If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 on that note, Bonterra Energy (TSE:BNE) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Bonterra Energy is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.078 = CA$71m ÷ (CA$984m - CA$69m) (Based on the trailing twelve months to March 2024).

Thus, Bonterra Energy has an ROCE of 7.8%. On its own, that's a low figure but it's around the 8.6% average generated by the Oil and Gas industry.

View our latest analysis for Bonterra Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bonterra Energy's ROCE against it's prior returns. If you'd like to look at how Bonterra Energy has performed in the past in other metrics, you can view this free graph of Bonterra Energy's past earnings, revenue and cash flow.

The Trend Of ROCE

Bonterra Energy 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 285% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To sum it up, Bonterra Energy is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 5.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Bonterra Energy, you might be interested to know about the 1 warning sign that our analysis has discovered.