Stock Analysis
- United States
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- Marine and Shipping
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- NYSE:GNK
Genco Shipping & Trading (NYSE:GNK) Is Experiencing Growth In Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Genco Shipping & Trading (NYSE:GNK) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Genco Shipping & Trading:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.059 = US$64m ÷ (US$1.2b - US$94m) (Based on the trailing twelve months to June 2021).
Therefore, Genco Shipping & Trading has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Shipping industry average of 8.2%.
See our latest analysis for Genco Shipping & Trading
Above you can see how the current ROCE for Genco Shipping & Trading compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Genco Shipping & Trading.
The Trend Of ROCE
Shareholders will be relieved that Genco Shipping & Trading has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.9%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
One more thing to note, Genco Shipping & Trading has decreased current liabilities to 8.0% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Genco Shipping & Trading has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
The Bottom Line
In summary, we're delighted to see that Genco Shipping & Trading has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
While Genco Shipping & Trading looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether GNK is currently trading for a fair price.
While Genco Shipping & Trading 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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What are the risks and opportunities for Genco Shipping & Trading?
Genco Shipping & Trading Limited, together with its subsidiaries, engages in the ocean transportation of dry bulk cargoes worldwide.
Rewards
Trading at 57.2% below our estimate of its fair value
Earnings are forecast to grow 18.35% per year
Risks
Profit margins (24.1%) are lower than last year (37.2%)
Further research on
Genco Shipping & Trading
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.
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About NYSE:GNK
Genco Shipping & Trading
Genco Shipping & Trading Limited, together with its subsidiaries, engages in the ocean transportation of dry bulk cargoes worldwide.
Excellent balance sheet, good value and pays a dividend.
