Yahoo Finance Kinetik Holdings (NYSE:KNTK) Is Looking To Continue Growing Its Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Kinetik Holdings (NYSE:KNTK) and its trend of ROCE, we really liked what we saw.
What Is 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. To calculate this metric for Kinetik Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.029 = US$183m ÷ (US$6.4b - US$234m) (Based on the trailing twelve months to March 2024).
Thus, Kinetik Holdings has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.
View our latest analysis for Kinetik Holdings
In the above chart we have measured Kinetik Holdings' 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 Kinetik Holdings for free.
What The Trend Of ROCE Can Tell Us
Kinetik Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses four years ago, but now it's earning 2.9% which is a sight for sore eyes. In addition to that, Kinetik Holdings is employing 57% 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.
The Bottom Line On Kinetik Holdings' ROCE
In summary, it's great to see that Kinetik Holdings has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 36% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to know some of the risks facing Kinetik Holdings we've found 5 warning signs (2 are potentially serious!) that you should be aware of before investing here.
While Kinetik Holdings 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.
