Tourmaline Oil Stock – The Return Trends At Tourmaline Oil (TSE:TOU) Look Promising
What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Tourmaline Oil (TSE:TOU) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Tourmaline Oil, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.037 = CA$445m ÷ (CA$13b – CA$734m) (Based on the trailing twelve months to March 2021).
So, Tourmaline Oil has an ROCE of 3.7%. In absolute terms, that’s a low return, but it’s much better than the Oil and Gas industry average of 1.9%.
See our latest analysis for Tourmaline Oil
Above you can see how the current ROCE for Tourmaline Oil 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 Tourmaline Oil here for free.
What Does the ROCE Trend For Tourmaline Oil Tell Us?
We’re glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 3.7%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 61%. So we’re very much inspired by what we’re seeing at Tourmaline Oil thanks to its ability to profitably reinvest capital.
What We Can Learn From Tourmaline Oil’s ROCE
In summary, it’s great to see that Tourmaline Oil can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 6.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we’d look further into this stock in case it has more traits that could make it multiply in the long term.
Tourmaline Oil does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those doesn’t sit too well with us…
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
When trading stocks or any other investment, use the platform considered by many to be the Professional’s Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.