Pacific Basin Shipping (HKG:2343) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Pacific Basin Shipping (HKG:2343) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Pacific Basin Shipping is:

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

0.15 = US$318m ÷ (US$2.5b - US$422m) (Based on the trailing twelve months to June 2023).

So, Pacific Basin Shipping has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Shipping industry.

View our latest analysis for Pacific Basin Shipping

In the above chart we have measured Pacific Basin Shipping's 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Pacific Basin Shipping Tell Us?

Pacific Basin Shipping's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 374% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Pacific Basin Shipping's ROCE

To sum it up, Pacific Basin Shipping is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 158% 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 Pacific Basin Shipping can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Pacific Basin Shipping (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.