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Has OGE Energy (NYSE:OGE) Got What It Takes To Become A Multi-Bagger?

Simply Wall St
·3-min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think OGE Energy (NYSE:OGE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for OGE Energy:

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

0.054 = US$534m ÷ (US$10b - US$595m) (Based on the trailing twelve months to June 2020).

So, OGE Energy has an ROCE of 5.4%. Even though it's in line with the industry average of 4.6%, it's still a low return by itself.

See our latest analysis for OGE Energy

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In the above chart we have measured OGE Energy'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 OGE Energy.

So How Is OGE Energy's ROCE Trending?

Over the past five years, OGE Energy's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at OGE Energy in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That probably explains why OGE Energy has been paying out 74% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Key Takeaway

In a nutshell, OGE Energy has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 35% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for OGE Energy (1 is significant) you should be aware of.

While OGE Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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