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When researching a stock for investment, what can tell us that the company is in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Helix Energy Solutions Group (NYSE:HLX), we weren't too upbeat about how things were going.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Helix Energy Solutions Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0011 = US$2.4m ÷ (US$2.4b - US$288m) (Based on the trailing twelve months to March 2023).
So, Helix Energy Solutions Group has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 9.9%.
Check out our latest analysis for Helix Energy Solutions Group
Above you can see how the current ROCE for Helix Energy Solutions Group 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 report for Helix Energy Solutions Group.
How Are Returns Trending?
In terms of Helix Energy Solutions Group's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 0.7%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Helix Energy Solutions Group to turn into a multi-bagger.
The Key Takeaway
In summary, it's unfortunate that Helix Energy Solutions Group is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
On a separate note, we've found 1 warning sign for Helix Energy Solutions Group you'll probably want to know about.