Returns Are Gaining Momentum At TotalEnergies EP Gabon Société anonyme (EPA:EC)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. With that in mind, we've noticed some promising trends at TotalEnergies EP Gabon Société anonyme (EPA:EC) so let's look a bit deeper.

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. The formula for this calculation on TotalEnergies EP Gabon Société anonyme is:

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

0.055 = US$175m ÷ (US$3.4b - US$214m) (Based on the trailing twelve months to June 2022).

Therefore, TotalEnergies EP Gabon Société anonyme has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 19%.

Our analysis indicates that EC is potentially undervalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for TotalEnergies EP Gabon Société anonyme's ROCE against it's prior returns. If you'd like to look at how TotalEnergies EP Gabon Société anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that TotalEnergies EP Gabon Société anonyme is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 5.5% which is a sight for sore eyes. Not only that, but the company is utilizing 23% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On TotalEnergies EP Gabon Société anonyme's ROCE

Overall, TotalEnergies EP Gabon Société anonyme gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 182% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if TotalEnergies EP Gabon Société anonyme can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing TotalEnergies EP Gabon Société anonyme we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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. 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.