There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Pangaea Logistics Solutions (NASDAQ:PANL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Pangaea Logistics Solutions:

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

0.089 = US$54m ÷ (US$729m - US$115m) (Based on the trailing twelve months to September 2023).

Therefore, Pangaea Logistics Solutions has an ROCE of 8.9%. On its own, that's a low figure but it's around the 8.2% average generated by the Shipping industry.

Check out our latest analysis for Pangaea Logistics Solutions

In the above chart we have measured Pangaea Logistics Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Pangaea Logistics Solutions .

So How Is Pangaea Logistics Solutions' ROCE Trending?

In terms of Pangaea Logistics Solutions' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 8.9% for the last five years, and the capital employed within the business has risen 61% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Pangaea Logistics Solutions' ROCE

In conclusion, Pangaea Logistics Solutions has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 189% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.