Yahoo Finance Returns Are Gaining Momentum At Civeo (NYSE:CVEO)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 on that note, Civeo (NYSE:CVEO) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on Civeo is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = US$27m ÷ (US$513m - US$93m) (Based on the trailing twelve months to March 2024).
So, Civeo has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.9%.
View our latest analysis for Civeo
Above you can see how the current ROCE for Civeo 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 analyst report for Civeo .
What The Trend Of ROCE Can Tell Us
We're delighted to see that Civeo is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 54%. Civeo could be selling under-performing assets since the ROCE is improving.
The Key Takeaway
From what we've seen above, Civeo has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a solid 45% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Civeo can keep these trends up, it could have a bright future ahead.
One more thing: We've identified 4 warning signs with Civeo (at least 1 which is potentially serious) , and understanding them would certainly be useful.
While Civeo isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
