Here’s What’s Happening With Returns At Rompetrol Well Services (BVB:PTR)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Rompetrol Well Services (BVB:PTR) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Rompetrol Well Services is:

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

0.00008 = RON12k ÷ (RON152m - RON10m) (Based on the trailing twelve months to December 2020).

So, Rompetrol Well Services has an ROCE of 0.008%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 4.3%.

View our latest analysis for Rompetrol Well Services

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

What Can We Tell From Rompetrol Well Services' ROCE Trend?

Rompetrol Well Services has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 0.008% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To sum it up, Rompetrol Well Services is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 52% return over the last five years. In light of that, we think it's worth looking further into this stock because if Rompetrol Well Services can keep these trends up, it could have a bright future ahead.

Rompetrol Well Services does have some risks though, and we've spotted 2 warning signs for Rompetrol Well Services that you might be interested in.

While Rompetrol Well Services 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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