If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Capital Clean Energy Carriers:

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

0.055 = US$214m ÷ (US$4.1b - US$214m) (Based on the trailing twelve months to September 2024).

So, Capital Clean Energy Carriers has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Shipping industry average of 10%.

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're interested, you can view the analysts predictions in 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. To be more specific, ROCE has fallen from 9.0% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Capital Clean Energy Carriers' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Capital Clean Energy Carriers is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 99% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

Capital Clean Energy Carriers does have some risks, we noticed 5 warning signs (and 4 which are potentially serious) we think you should know about.

While Capital Clean Energy Carriers 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.