Thungela Resources (JSE:TGA) Hasn't Managed To Accelerate Its Returns

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Thungela Resources (JSE:TGA), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

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 Thungela Resources:

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

0.055 = R2.1b ÷ (R47b - R8.4b) (Based on the trailing twelve months to June 2025).

So, Thungela Resources has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 20%.

View our latest analysis for Thungela Resources

Above you can see how the current ROCE for Thungela Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Thungela Resources for free.

What Does the ROCE Trend For Thungela Resources Tell Us?

There are better returns on capital out there than what we're seeing at Thungela Resources. The company has employed 98% more capital in the last four years, and the returns on that capital have remained stable at 5.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Thungela Resources has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 53% over the last three years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 2 warning signs for Thungela Resources (1 is potentially serious) you should be aware of.

While Thungela Resources 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.