What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. And in light of that, the trends we're seeing at Orca Energy Group's (CVE:ORC.B) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Orca Energy Group:

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

0.27 = US$40m ÷ (US$205m - US$59m) (Based on the trailing twelve months to March 2024).

Thus, Orca Energy Group has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 8.6% earned by companies in a similar industry.

See our latest analysis for Orca Energy Group

Above you can see how the current ROCE for Orca Energy Group 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 analyst report for Orca Energy Group .

What Does the ROCE Trend For Orca Energy Group Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Orca Energy Group. The figures show that over the last five years, returns on capital have grown by 102%. The company is now earning US$0.3 per dollar of capital employed. In regards to capital employed, Orca Energy Group appears to been achieving more with less, since the business is using 28% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In summary, it's great to see that Orca Energy Group has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 11% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Orca Energy Group, we've spotted 3 warning signs, and 1 of them is concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.