Kinetik Holdings' (NYSE:KNTK) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Kinetik Holdings (NYSE:KNTK) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Kinetik Holdings is:

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

0.027 = US$162m ÷ (US$6.2b - US$199m) (Based on the trailing twelve months to June 2023).

Thus, Kinetik Holdings has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 20%.

See our latest analysis for Kinetik Holdings

In the above chart we have measured Kinetik Holdings' 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 report on analyst forecasts for the company.

So How Is Kinetik Holdings' ROCE Trending?

The fact that Kinetik Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses three years ago, but now it's earning 2.7% which is a sight for sore eyes. Not only that, but the company is utilizing 59% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Kinetik Holdings' ROCE

To the delight of most shareholders, Kinetik Holdings has now broken into profitability. And with a respectable 12% 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. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While Kinetik Holdings 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.