There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Capital Clean Energy Carriers (NASDAQ:CCEC), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Capital Clean Energy Carriers is:

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

0.05 = US$188m ÷ (US$4.0b - US$209m) (Based on the trailing twelve months to June 2024).

So, Capital Clean Energy Carriers has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 9.2%.

See our latest analysis for Capital Clean Energy Carriers

In the above chart we have measured Capital Clean Energy Carriers' 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 Capital Clean Energy Carriers .

What Can We Tell From Capital Clean Energy Carriers' ROCE Trend?

When we looked at the ROCE trend at Capital Clean Energy Carriers, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.0% from 9.6% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Capital Clean Energy Carriers. And the stock has done incredibly well with a 114% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Capital Clean Energy Carriers does have some risks, we noticed 5 warning signs (and 3 which are potentially serious) we think you should know about.