Himalaya Shipping (OB:HSHP) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Himalaya Shipping (OB:HSHP) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Himalaya Shipping:

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

0.049 = US$42m ÷ (US$897m - US$38m) (Based on the trailing twelve months to June 2024).

Therefore, Himalaya Shipping has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Shipping industry average of 19%.

Check out our latest analysis for Himalaya Shipping

Above you can see how the current ROCE for Himalaya Shipping compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Himalaya Shipping .

The Trend Of ROCE

We're delighted to see that Himalaya Shipping is reaping rewards from its investments and is now generating some pre-tax profits. About two years ago the company was generating losses but things have turned around because it's now earning 4.9% on its capital. Not only that, but the company is utilizing 599% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Himalaya Shipping's ROCE

In summary, it's great to see that Himalaya Shipping has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 45% 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 Himalaya Shipping can keep these trends up, it could have a bright future ahead.

Himalaya Shipping does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

While Himalaya Shipping 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. 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.