We Like These Underlying Return On Capital Trends At Pyxis Tankers (NASDAQ:PXS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 on that note, Pyxis Tankers (NASDAQ:PXS) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 Pyxis Tankers, this is the formula:

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

0.11 = US$21m ÷ (US$199m - US$13m) (Based on the trailing twelve months to June 2024).

So, Pyxis Tankers has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Shipping industry average of 9.0% it's much better.

View our latest analysis for Pyxis Tankers

In the above chart we have measured Pyxis Tankers' 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 Pyxis Tankers for free.

What Can We Tell From Pyxis Tankers' ROCE Trend?

The fact that Pyxis Tankers is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. In addition to that, Pyxis Tankers is employing 92% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Pyxis Tankers' ROCE

Long story short, we're delighted to see that Pyxis Tankers' reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 28% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Pyxis Tankers (of which 2 shouldn't be ignored!) that you should know about.

While Pyxis Tankers 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.