Is Kolibri Global Energy (TSE:KEI) A Future Multi-bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Kolibri Global Energy (TSE:KEI) looks quite promising in regards to its trends of return on capital.

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 Kolibri Global Energy, this is the formula:

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

0.04 = US$3.1m ÷ (US$85m - US$8.5m) (Based on the trailing twelve months to September 2020).

So, Kolibri Global Energy has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 6.3%.

See our latest analysis for Kolibri Global Energy

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Kolibri Global Energy, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that Kolibri Global Energy is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 4.0% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 50%. This could potentially mean that the company is selling some of its assets.

In Conclusion...

In summary, it's great to see that Kolibri Global Energy has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has dived 78% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One more thing: We've identified 3 warning signs with Kolibri Global Energy (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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