If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, we've noticed some promising trends at PJSC LUKOIL (MCX:LKOH) so let's look a bit deeper.
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. To calculate this metric for PJSC LUKOIL, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = ₽766b ÷ (₽6.6t - ₽1.2t) (Based on the trailing twelve months to September 2021).
So, PJSC LUKOIL has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 10% it's much better.
Check out our latest analysis for PJSC LUKOIL
Above you can see how the current ROCE for PJSC LUKOIL compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
Investors would be pleased with what's happening at PJSC LUKOIL. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. So we're very much inspired by what we're seeing at PJSC LUKOIL thanks to its ability to profitably reinvest capital.
Our Take On PJSC LUKOIL's ROCE
To sum it up, PJSC LUKOIL has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if PJSC LUKOIL can keep these trends up, it could have a bright future ahead.
If you want to continue researching PJSC LUKOIL, you might be interested to know about the 1 warning sign that our analysis has discovered.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
About MISX:LKOH
PJSC LUKOIL
PJSC LUKOIL, together with its subsidiaries, engages in exploration, production, refining, marketing, and distribution of oil and gas.
Flawless balance sheet with solid track record and pays a dividend.
