Returns At ProFrac Holding (NASDAQ:ACDC) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in ProFrac Holding's (NASDAQ:ACDC) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on ProFrac Holding is:

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

0.033 = US$79m ÷ (US$3.1b - US$715m) (Based on the trailing twelve months to September 2024).

Thus, ProFrac Holding has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 10%.

See our latest analysis for ProFrac Holding

In the above chart we have measured ProFrac Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ProFrac Holding for free.

The Trend Of ROCE

The fact that ProFrac Holding is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 3.3% which is a sight for sore eyes. In addition to that, ProFrac Holding is employing 416% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From ProFrac Holding's ROCE

In summary, it's great to see that ProFrac Holding has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 15% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for ACDC on our platform that is definitely worth checking out.

While ProFrac Holding 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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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.