To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Gulfport Energy (NYSE:GPOR) so let's look a bit deeper.
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 Gulfport Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$413m ÷ (US$3.2b - US$342m) (Based on the trailing twelve months to June 2024).
Therefore, Gulfport Energy has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 12% 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Gulfport Energy .
The Trend Of ROCE
We're pretty happy with how the ROCE has been trending at Gulfport Energy. We found that the returns on capital employed over the last five years have risen by 44%. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, Gulfport Energy appears to been achieving more with less, since the business is using 51% less capital to run its operation. Gulfport Energy may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Bottom Line
From what we've seen above, Gulfport Energy has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a solid 95% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know more about Gulfport Energy, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.