We Like These Underlying Trends At Rompetrol Well Services (BVB:PTR)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, Rompetrol Well Services (BVB:PTR) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Rompetrol Well Services, this is the formula:

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

0.02 = RON2.9m ÷ (RON164m - RON22m) (Based on the trailing twelve months to June 2020).

So, Rompetrol Well Services has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 5.1%.

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 The Trend Of ROCE Can Tell Us

We're delighted to see that Rompetrol Well Services is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.0% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Rompetrol Well Services' ROCE

As discussed above, Rompetrol Well Services appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 92% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Rompetrol Well Services does come with some risks, and we've found 4 warning signs that you should be aware of.

While Rompetrol Well 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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