Oil States International (NYSE:OIS) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 on that note, Oil States International (NYSE:OIS) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Oil States International is:

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

0.0088 = US$7.7m ÷ (US$1.1b - US$169m) (Based on the trailing twelve months to March 2023).

Thus, Oil States International has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 9.9%.

View our latest analysis for Oil States International

In the above chart we have measured Oil States International's 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 Oil States International here for free.

SWOT Analysis for Oil States International

How Are Returns Trending?

Like most people, we're pleased that Oil States International is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 0.9% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 54% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Oil States International could be selling under-performing assets since the ROCE is improving.

Our Take On Oil States International's ROCE

From what we've seen above, Oil States International has managed to increase it's returns on capital all the while reducing it's capital base. Although the company may be facing some issues elsewhere since the stock has plunged 80% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a separate note, we've found 2 warning signs for Oil States International you'll probably want to know about.

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.