Investors Met With Slowing Returns on Capital At OSG (TSE:6136)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think OSG (TSE:6136) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. To calculate this metric for OSG, this is the formula:

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

0.082 = JP¥19b ÷ (JP¥249b - JP¥23b) (Based on the trailing twelve months to May 2025).

Therefore, OSG has an ROCE of 8.2%. Even though it's in line with the industry average of 8.2%, it's still a low return by itself.

View our latest analysis for OSG

In the above chart we have measured OSG's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering OSG for free.

What Does the ROCE Trend For OSG Tell Us?

There are better returns on capital out there than what we're seeing at OSG. Over the past five years, ROCE has remained relatively flat at around 8.2% and the business has deployed 28% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On OSG's ROCE

In summary, OSG has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 47% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

OSG does have some risks though, and we've spotted 1 warning sign for OSG that you might be interested in.

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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.