Stock Analysis

Trican Well Service (TSE:TCW) Is Doing The Right Things To Multiply Its Share Price

TSX:TCW
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Trican Well Service (TSE:TCW) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Trican Well Service:

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

0.029 = CA$15m ÷ (CA$626m - CA$114m) (Based on the trailing twelve months to March 2022).

So, Trican Well Service has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 4.7%.

Check out our latest analysis for Trican Well Service

roce
TSX:TCW Return on Capital Employed July 10th 2022

Above you can see how the current ROCE for Trican Well Service compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Trican Well Service.

What Does the ROCE Trend For Trican Well Service Tell Us?

We're delighted to see that Trican Well Service is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Trican Well Service is using 25% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line On Trican Well Service's ROCE

In summary, it's great to see that Trican Well Service has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Trican Well Service, we've discovered 2 warning signs that you should be aware of.

While Trican Well Service isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Trican Well Service is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.