Oceanus Group (SGX:579) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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. The formula for this calculation on Oceanus Group is:

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

0.034 = S$3.3m ÷ (S$153m - S$56m) (Based on the trailing twelve months to June 2022).

Thus, Oceanus Group has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.

Check out the opportunities and risks within the SG Food industry.

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 want to delve into the historical earnings, revenue and cash flow of Oceanus Group, check out these free graphs here.

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 four years ago, but now it's earning 3.4% which is a sight for sore eyes. In addition to that, Oceanus Group is employing 318% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Oceanus Group's ROCE

In summary, it's great to see that Oceanus Group has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 50% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Oceanus Group (of which 2 are significant!) that you should know about.

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.