Golden Energy Offshore Services (OB:GEOS) Might Have The Makings Of A Multi-Bagger

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Golden Energy Offshore Services (OB:GEOS) 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 Golden Energy Offshore Services is:

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

0.012 = kr14m ÷ (kr1.5b - kr276m) (Based on the trailing twelve months to March 2024).

So, Golden Energy Offshore Services has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 17%.

Check out our latest analysis for Golden Energy Offshore Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Golden Energy Offshore Services' ROCE against it's prior returns. If you're interested in investigating Golden Energy Offshore Services' past further, check out this free graph covering Golden Energy Offshore Services' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Golden Energy Offshore Services is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 1.2% on its capital. Not only that, but the company is utilizing 135% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

To the delight of most shareholders, Golden Energy Offshore Services has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 76% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you'd like to know more about Golden Energy Offshore Services, we've spotted 5 warning signs, and 3 of them are concerning.

While Golden Energy Offshore Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.