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 when we looked at Journey Energy (TSE:JOY) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Journey Energy is:

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

0.042 = CA$22m ÷ (CA$611m - CA$79m) (Based on the trailing twelve months to March 2024).

Thus, Journey Energy has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 8.7%.

See our latest analysis for Journey Energy

In the above chart we have measured Journey Energy'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 Journey Energy .

So How Is Journey Energy's ROCE Trending?

Journey Energy has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.2% which is a sight for sore eyes. In addition to that, Journey Energy is employing 39% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Journey Energy's ROCE

Overall, Journey Energy gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 38% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Like most companies, Journey Energy does come with some risks, and we've found 2 warning signs that you should be aware of.