We Like These Underlying Return On Capital Trends At Antero Resources (NYSE:AR)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Antero Resources (NYSE:AR) and its trend of ROCE, we really liked what we saw.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Analysts use this formula to calculate it for Antero Resources:

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

0.019 = US$225m ÷ (US$13b - US$1.5b) (Based on the trailing twelve months to March 2025).

Therefore, Antero Resources has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.8%.

Check out our latest analysis for Antero Resources

Above you can see how the current ROCE for Antero Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Antero Resources for free.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Antero Resources is reaping rewards from its investments and has now broken into profitability. The company now earns 1.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Antero Resources has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Key Takeaway

To sum it up, Antero Resources is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 1,328% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Antero Resources can keep these trends up, it could have a bright future ahead.

Like most companies, Antero Resources does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

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.