Investors Will Want Granite Ridge Resources' (NYSE:GRNT) Growth In ROCE To Persist

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Granite Ridge Resources (NYSE:GRNT) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Granite Ridge Resources is:

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

0.13 = US$117m ÷ (US$967m - US$66m) (Based on the trailing twelve months to March 2024).

So, Granite Ridge Resources has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

Check out our latest analysis for Granite Ridge Resources

In the above chart we have measured Granite Ridge Resources' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Granite Ridge Resources .

So How Is Granite Ridge Resources' ROCE Trending?

We like the trends that we're seeing from Granite Ridge Resources. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 246% more capital is being employed now too. So we're very much inspired by what we're seeing at Granite Ridge Resources thanks to its ability to profitably reinvest capital.

The Bottom Line On Granite Ridge Resources' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Granite Ridge Resources has. Given the stock has declined 29% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 2 warning signs with Granite Ridge Resources (at least 1 which can't be ignored) , and understanding these would certainly be useful.

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

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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.