Returns At Magnolia Oil & Gas (NYSE:MGY) Are On The Way Up

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Magnolia Oil & Gas (NYSE:MGY) so let's look a bit deeper.

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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 Magnolia Oil & Gas is:

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

0.19 = US$497m ÷ (US$2.9b - US$289m) (Based on the trailing twelve months to June 2025).

Thus, Magnolia Oil & Gas has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Oil and Gas industry.

Check out our latest analysis for Magnolia Oil & Gas

In the above chart we have measured Magnolia Oil & Gas' 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 Magnolia Oil & Gas .

What Can We Tell From Magnolia Oil & Gas' ROCE Trend?

Magnolia Oil & Gas has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 19% on its capital. And unsurprisingly, like most companies trying to break into the black, Magnolia Oil & Gas is utilizing 99% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Magnolia Oil & Gas' ROCE

Long story short, we're delighted to see that Magnolia Oil & Gas' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 420% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for MGY that compares the share price and estimated value.

While Magnolia Oil & Gas 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.