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. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ShaMaran Petroleum (CVE:SNM) so let's look a bit deeper.

What Is 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. Analysts use this formula to calculate it for ShaMaran Petroleum:

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

0.053 = US$20m ÷ (US$397m - US$22m) (Based on the trailing twelve months to June 2024).

Therefore, ShaMaran Petroleum has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 8.1%.

View our latest analysis for ShaMaran Petroleum

In the above chart we have measured ShaMaran Petroleum's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ShaMaran Petroleum for free.

What Does the ROCE Trend For ShaMaran Petroleum Tell Us?

ShaMaran Petroleum has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 574% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On ShaMaran Petroleum's ROCE

As discussed above, ShaMaran Petroleum appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 23% 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.