South Ocean Holdings (JSE:SOH) Is Doing The Right Things To Multiply Its Share Price

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at South Ocean Holdings (JSE:SOH) so let's look a bit deeper.

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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. The formula for this calculation on South Ocean Holdings is:

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

0.066 = R59m ÷ (R1.2b - R334m) (Based on the trailing twelve months to December 2024).

Thus, South Ocean Holdings has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 29%.

Check out our latest analysis for South Ocean Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for South Ocean Holdings' ROCE against it's prior returns. If you'd like to look at how South Ocean Holdings has performed in the past in other metrics, you can view this free graph of South Ocean Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that South Ocean Holdings 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 6.6% on its capital. In addition to that, South Ocean Holdings is employing 69% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On South Ocean Holdings' ROCE

Overall, South Ocean Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 808% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if South Ocean Holdings can keep these trends up, it could have a bright future ahead.

South Ocean Holdings does have some risks though, and we've spotted 4 warning signs for South Ocean Holdings that you might be interested in.

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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.