There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Oil States International (NYSE:OIS) so let's look a bit deeper.

What Is 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 Oil States International:

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

0.024 = US$21m ÷ (US$994m - US$141m) (Based on the trailing twelve months to September 2024).

Thus, Oil States International has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 9.7%.

Check out our latest analysis for Oil States International

Above you can see how the current ROCE for Oil States International 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 Oil States International .

What The Trend Of ROCE Can Tell Us

It's great to see that Oil States International has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 51% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Oil States International could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Oil States International's ROCE

In a nutshell, we're pleased to see that Oil States International has been able to generate higher returns from less capital. Given the stock has declined 43% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for OIS that compares the share price and estimated value.

While Oil States International 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.