We Like These Underlying Return On Capital Trends At Murphy Oil (NYSE:MUR)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at Murphy Oil (NYSE:MUR) so let's look a bit deeper.
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 Murphy Oil, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = US$399m ÷ (US$9.7b - US$858m) (Based on the trailing twelve months to September 2025).
Thus, Murphy Oil has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 8.7%.
View our latest analysis for Murphy Oil
Above you can see how the current ROCE for Murphy Oil 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 Murphy Oil .
What Can We Tell From Murphy Oil's ROCE Trend?
Shareholders will be relieved that Murphy Oil has broken into profitability. The company now earns 4.5% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Bottom Line On Murphy Oil's ROCE
To sum it up, Murphy Oil is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Murphy Oil can keep these trends up, it could have a bright future ahead.
One more thing to note, we've identified 3 warning signs with Murphy Oil and understanding these should be part of your investment process.
While Murphy Oil 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.