SBM Offshore's (AMS:SBMO) Returns Have Hit A Wall

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. Having said that, from a first glance at SBM Offshore (AMS:SBMO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for SBM Offshore:

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

0.077 = US$1.1b ÷ (US$18b - US$3.0b) (Based on the trailing twelve months to June 2025).

Thus, SBM Offshore has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 12%.

View our latest analysis for SBM Offshore

In the above chart we have measured SBM Offshore'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 analyst report for SBM Offshore .

What The Trend Of ROCE Can Tell Us

In terms of SBM Offshore's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.7% for the last five years, and the capital employed within the business has risen 75% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On SBM Offshore's ROCE

In conclusion, SBM Offshore has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 89% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing SBM Offshore we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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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.