Yahoo Finance The Returns At OceanaGold (TSE:OGC) Aren't Growing
There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Although, when we looked at OceanaGold (TSE:OGC), it didn't seem to tick all of these boxes.
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 OceanaGold:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = US$103m ÷ (US$2.5b - US$278m) (Based on the trailing twelve months to June 2024).
Therefore, OceanaGold has an ROCE of 4.6%. On its own that's a low return, but compared to the average of 3.3% generated by the Metals and Mining industry, it's much better.
Check out our latest analysis for OceanaGold
In the above chart we have measured OceanaGold's 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 OceanaGold for free.
What The Trend Of ROCE Can Tell Us
In terms of OceanaGold's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.6% for the last five years, and the capital employed within the business has risen 20% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Key Takeaway
Long story short, while OceanaGold has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 17% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
OceanaGold does have some risks though, and we've spotted 2 warning signs for OceanaGold that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
