CONSOL Energy (NYSE:CEIX) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at CONSOL Energy's (NYSE:CEIX) look very promising so lets take a look.

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 CONSOL Energy:

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

0.40 = US$909m ÷ (US$2.7b - US$414m) (Based on the trailing twelve months to June 2023).

Therefore, CONSOL Energy has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 20%.

See our latest analysis for CONSOL Energy

In the above chart we have measured CONSOL Energy'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 CONSOL Energy here for free.

What The Trend Of ROCE Can Tell Us

CONSOL Energy's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 300% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

In summary, we're delighted to see that CONSOL Energy has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 146% 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 CONSOL Energy can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with CONSOL Energy (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

CONSOL Energy is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.