Will the Promising Trends At Navitas Petroleum Limited Partnership (TLV:NVPT.L) Continue?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Navitas Petroleum Limited Partnership (TLV:NVPT.L) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Navitas Petroleum Limited Partnership:

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

0.049 = US$8.9m ÷ (US$411m - US$228m) (Based on the trailing twelve months to September 2020).

Thus, Navitas Petroleum Limited Partnership has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 12%.

View our latest analysis for Navitas Petroleum Limited Partnership

Historical performance is a great place to start when researching a stock so above you can see the gauge for Navitas Petroleum Limited Partnership's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Navitas Petroleum Limited Partnership, check out these free graphs here.

What Can We Tell From Navitas Petroleum Limited Partnership's ROCE Trend?

The fact that Navitas Petroleum Limited Partnership is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 4.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Navitas Petroleum Limited Partnership is utilizing 2,411% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a side note, Navitas Petroleum Limited Partnership's current liabilities are still rather high at 56% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In summary, it's great to see that Navitas Petroleum Limited Partnership has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 67% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Navitas Petroleum Limited Partnership can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While Navitas Petroleum Limited Partnership isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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