Newpark Resources (NYSE:NR) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Newpark Resources (NYSE:NR) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Newpark Resources:

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

0.077 = US$39m ÷ (US$662m - US$153m) (Based on the trailing twelve months to September 2023).

Thus, Newpark Resources has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 12%.

View our latest analysis for Newpark Resources

In the above chart we have measured Newpark Resources' 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 Newpark Resources here for free.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Newpark Resources. We found that the returns on capital employed over the last five years have risen by 22%. The company is now earning US$0.08 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 35% less capital than it was five years ago. Newpark Resources may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Newpark Resources' ROCE

From what we've seen above, Newpark Resources has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 37% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Newpark Resources that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.