Thungela Resources' (JSE:TGA) Returns Have Hit A Wall

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Thungela Resources (JSE:TGA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. The formula for this calculation on Thungela Resources is:

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

0.055 = R2.1b ÷ (R47b - R8.4b) (Based on the trailing twelve months to June 2025).

Therefore, Thungela Resources has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 20%.

View our latest analysis for Thungela Resources

Above you can see how the current ROCE for Thungela Resources 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 Thungela Resources .

What Does the ROCE Trend For Thungela Resources Tell Us?

There are better returns on capital out there than what we're seeing at Thungela Resources. The company has employed 98% more capital in the last four years, and the returns on that capital have remained stable at 5.5%. 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.

The Bottom Line On Thungela Resources' ROCE

As we've seen above, Thungela Resources' returns on capital haven't increased but it is reinvesting in the business. And in the last three years, the stock has given away 45% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing: We've identified 3 warning signs with Thungela Resources (at least 1 which is significant) , and understanding them would certainly be useful.

While Thungela Resources 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.