If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Logan Energy (CVE:LGN) 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. To calculate this metric for Logan Energy, this is the formula:

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

0.027 = CA$5.5m ÷ (CA$245m - CA$40m) (Based on the trailing twelve months to March 2024).

So, Logan Energy has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 8.6%.

See our latest analysis for Logan Energy

Above you can see how the current ROCE for Logan Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Logan Energy for free.

What Can We Tell From Logan Energy's ROCE Trend?

We're delighted to see that Logan Energy is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses one year ago, but now it's earning 2.7% which is a sight for sore eyes. Not only that, but the company is utilizing 96% more capital than before, but that's to be expected from a company 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.

Our Take On Logan Energy's ROCE

Overall, Logan 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. Since the stock has only returned 4.9% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Logan Energy, we've spotted 3 warning signs, and 1 of them is potentially serious.