What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Pyxis Tankers' (NASDAQ:PXS) returns on capital, so let's have a look.

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. The formula for this calculation on Pyxis Tankers is:

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

0.11 = US$21m ÷ (US$199m - US$13m) (Based on the trailing twelve months to June 2024).

Thus, Pyxis Tankers has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Shipping industry.

View our latest analysis for Pyxis Tankers

Above you can see how the current ROCE for Pyxis Tankers compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Pyxis Tankers .

So How Is Pyxis Tankers' ROCE Trending?

We're delighted to see that Pyxis Tankers is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Pyxis Tankers is utilizing 92% more capital than it was five years ago. 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.

In Conclusion...

To the delight of most shareholders, Pyxis Tankers has now broken into profitability. And since the stock has fallen 27% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Pyxis Tankers does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...

While Pyxis Tankers 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.