Birchcliff Energy (TSE:BIR) Might Have The Makings Of A Multi-Bagger

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Birchcliff Energy (TSE:BIR) so let's look a bit deeper.

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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. Analysts use this formula to calculate it for Birchcliff Energy:

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

0.067 = CA$225m ÷ (CA$3.5b - CA$130m) (Based on the trailing twelve months to March 2025).

Therefore, Birchcliff Energy has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 9.8%.

See our latest analysis for Birchcliff Energy

Above you can see how the current ROCE for Birchcliff Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Birchcliff Energy for free.

So How Is Birchcliff Energy's ROCE Trending?

Birchcliff Energy has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 6.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Birchcliff Energy is utilizing 29% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Birchcliff Energy's ROCE

Long story short, we're delighted to see that Birchcliff Energy's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 703% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Birchcliff Energy does come with some risks, and we've found 1 warning sign that you should be aware of.

While Birchcliff 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.