Stock Analysis

Oceaneering International (NYSE:OII) Is Doing The Right Things To Multiply Its Share Price

NYSE:OII
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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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Oceaneering International (NYSE:OII) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Oceaneering International, this is the formula:

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

0.12 = US$176m ÷ (US$2.3b - US$800m) (Based on the trailing twelve months to September 2023).

So, Oceaneering International has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Energy Services industry.

View our latest analysis for Oceaneering International

roce
NYSE:OII Return on Capital Employed November 3rd 2023

In the above chart we have measured Oceaneering International's 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.

What The Trend Of ROCE Can Tell Us

Like most people, we're pleased that Oceaneering International is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 12% which is no doubt a relief for some early shareholders. In regards to capital employed, Oceaneering International is using 38% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 35% 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 Oceaneering International's ROCE

In a nutshell, we're pleased to see that Oceaneering International has been able to generate higher returns from less capital. Considering the stock has delivered 24% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to continue researching Oceaneering International, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Oceaneering International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.