Nine Energy Service (NYSE:NINE) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Nine Energy Service (NYSE:NINE) and its trend of ROCE, we really liked what we saw.

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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 Nine Energy Service:

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

0.044 = US$12m ÷ (US$341m - US$74m) (Based on the trailing twelve months to September 2025).

So, Nine Energy Service has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 8.8%.

See our latest analysis for Nine Energy Service

Historical performance is a great place to start when researching a stock so above you can see the gauge for Nine Energy Service's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Nine Energy Service.

So How Is Nine Energy Service's ROCE Trending?

We're delighted to see that Nine Energy Service is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 4.4% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 34%. This could potentially mean that the company is selling some of its assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 22% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From Nine Energy Service's ROCE

In the end, Nine Energy Service has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 81% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Nine Energy Service does have some risks, we noticed 4 warning signs (and 2 which are a bit concerning) we think you should know about.

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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.