The Trend Of High Returns At NexTier Oilfield Solutions (NYSE:NEX) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of NexTier Oilfield Solutions (NYSE:NEX) 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 NexTier Oilfield Solutions:

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

0.32 = US$379m ÷ (US$1.7b - US$553m) (Based on the trailing twelve months to December 2022).

Therefore, NexTier Oilfield Solutions has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 8.0%.

View our latest analysis for NexTier Oilfield Solutions

In the above chart we have measured NexTier Oilfield Solutions' 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 NexTier Oilfield Solutions here for free.

The Trend Of ROCE

The trends we've noticed at NexTier Oilfield Solutions are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 32%. The amount of capital employed has increased too, by 47%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On NexTier Oilfield Solutions' 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 NexTier Oilfield Solutions has. Given the stock has declined 34% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

NexTier Oilfield Solutions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.