Oceanus Group (SGX:579) Is Doing The Right Things To Multiply Its Share Price

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Oceanus Group (SGX:579) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Oceanus Group:

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

0.17 = S$7.3m ÷ (S$87m - S$45m) (Based on the trailing twelve months to June 2021).

Thus, Oceanus Group has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 11% it's much better.

Check out our latest analysis for Oceanus Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oceanus Group's ROCE against it's prior returns. If you'd like to look at how Oceanus Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Oceanus Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 17% which is a sight for sore eyes. In addition to that, Oceanus Group is employing 83% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, Oceanus Group has a high ratio of current liabilities to total assets of 51%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Long story short, we're delighted to see that Oceanus Group's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 140% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Oceanus Group can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Oceanus Group, we've spotted 4 warning signs, and 2 of them are significant.

While Oceanus Group 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.