If you're looking for a multi-bagger, there's a few things to 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Gulfport Energy (NYSE:GPOR) looks quite promising in regards to its trends of return on capital.

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

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. The formula for this calculation on Gulfport Energy is:

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

0.18 = US$536m ÷ (US$3.3b - US$338m) (Based on the trailing twelve months to March 2024).

Thus, Gulfport Energy has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Oil and Gas industry.

In the above chart we have measured Gulfport Energy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Gulfport Energy .

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

Gulfport Energy has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 169%. The company is now earning US$0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 48% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In the end, Gulfport Energy has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 70% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Gulfport Energy does have some risks though, and we've spotted 2 warning signs for Gulfport Energy that you might be interested in.

While Gulfport Energy may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.