Investors Will Want Gulfport Energy's (NYSE:GPOR) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Gulfport Energy (NYSE:GPOR) and its trend of ROCE, we really liked what we saw.

What Is 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 Gulfport Energy:

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

0.18 = US$536m ÷ (US$3.3b - US$338m) (Based on the trailing twelve months to March 2024).

So, Gulfport Energy has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 14% it's much better.

View our latest analysis for Gulfport Energy

In the above chart we have measured Gulfport 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 Gulfport Energy for free.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Gulfport Energy. The data shows that returns on capital have increased by 169% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Gulfport Energy appears to been achieving more with less, since the business is using 48% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

From what we've seen above, Gulfport Energy has managed to increase it's returns on capital all the while reducing it's capital base. And with a respectable 70% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Gulfport Energy, we've discovered 2 warning signs that you should be aware of.

While Gulfport Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.