Gulfport Energy (NYSE:GPOR) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Gulfport Energy (NYSE:GPOR) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for Gulfport Energy, this is the formula:

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

0.14 = US$413m ÷ (US$3.2b - US$342m) (Based on the trailing twelve months to June 2024).

Thus, Gulfport Energy has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Oil and Gas industry.

View our latest analysis for Gulfport Energy

Above you can see how the current ROCE for Gulfport Energy 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 Gulfport Energy .

What The Trend Of ROCE Can Tell Us

Gulfport Energy has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 44% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 51% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Our Take On Gulfport Energy's ROCE

In a nutshell, we're pleased to see that Gulfport Energy has been able to generate higher returns from less capital. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Gulfport Energy we've found 3 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.

While Gulfport Energy 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.