If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Rattler Midstream (NASDAQ:RTLR) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Rattler Midstream is:

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

0.11 = US$199m ÷ (US$1.8b - US$39m) (Based on the trailing twelve months to September 2020).

Therefore, Rattler Midstream 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 Oil and Gas industry.

View our latest analysis for Rattler Midstream

In the above chart we have measured Rattler Midstream's 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 report for Rattler Midstream.

How Are Returns Trending?

The trends we've noticed at Rattler Midstream are quite reassuring. The data shows that returns on capital have increased substantially over the last three years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 618% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Rattler Midstream's ROCE

All in all, it's terrific to see that Rattler Midstream is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 39% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 3 warning signs for Rattler Midstream that we think you should be aware of.

While Rattler Midstream may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

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