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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Phillips 66 (NYSE:PSX), we don't think it's current trends fit the mold of a multi-bagger.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Phillips 66, this is the formula:

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

0.02 = US$1.1b ÷ (US$72b - US$15b) (Based on the trailing twelve months to March 2025).

Therefore, Phillips 66 has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 9.9%.

Check out our latest analysis for Phillips 66 NYSE:PSX Return on Capital Employed May 13th 2025

In the above chart we have measured Phillips 66's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our freeanalyst report for Phillips 66 .

What Can We Tell From Phillips 66's ROCE Trend?

On the surface, the trend of ROCE at Phillips 66 doesn't inspire confidence. To be more specific, ROCE has fallen from 8.5% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, Phillips 66 is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 89% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the  4 warning signs  we've spotted with Phillips 66 (including 1 which can't be ignored) .

Story Continues

For those who like to invest in solid companies, check out this freelist of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

View Comments