Investors Met With Slowing Returns on Capital At Okeanis Eco Tankers (OB:OET)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think Okeanis Eco Tankers (OB:OET) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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 Okeanis Eco Tankers:

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

0.026 = US$26m ÷ (US$1.0b - US$67m) (Based on the trailing twelve months to March 2022).

Thus, Okeanis Eco Tankers has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 10%.

View our latest analysis for Okeanis Eco Tankers

Above you can see how the current ROCE for Okeanis Eco Tankers compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Okeanis Eco Tankers here for free.

What Can We Tell From Okeanis Eco Tankers' ROCE Trend?

There are better returns on capital out there than what we're seeing at Okeanis Eco Tankers. The company has consistently earned 2.6% for the last three years, and the capital employed within the business has risen 34% 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.

What We Can Learn From Okeanis Eco Tankers' ROCE

In summary, Okeanis Eco Tankers has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 95% over the last three years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Okeanis Eco Tankers does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit concerning...

While Okeanis Eco Tankers 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.