Returns At Civeo (NYSE:CVEO) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Civeo (NYSE:CVEO) and its trend of ROCE, we really liked what we saw.

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 Civeo:

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

0.065 = US$27m ÷ (US$513m - US$93m) (Based on the trailing twelve months to March 2024).

Thus, Civeo has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 9.8%.

View our latest analysis for Civeo

Above you can see how the current ROCE for Civeo compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Civeo .

So How Is Civeo's ROCE Trending?

We're delighted to see that Civeo is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 6.5% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 54%. Civeo could be selling under-performing assets since the ROCE is improving.

The Key Takeaway

In the end, Civeo has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has only returned 30% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On a final note, we found 4 warning signs for Civeo (1 shouldn't be ignored) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com