Yahoo Finance The Returns At WEC Energy Group (NYSE:WEC) Aren't Growing
There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think WEC Energy Group (NYSE:WEC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for WEC Energy Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = US$2.0b ÷ (US$42b - US$4.6b) (Based on the trailing twelve months to December 2022).
Thus, WEC Energy Group has an ROCE of 5.4%. Even though it's in line with the industry average of 5.0%, it's still a low return by itself.
View our latest analysis for WEC Energy Group
Above you can see how the current ROCE for WEC Energy 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 WEC Energy Group.
The Trend Of ROCE
In terms of WEC Energy Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.4% for the last five years, and the capital employed within the business has risen 34% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line
As we've seen above, WEC Energy Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 83% 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.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for WEC Energy Group (of which 1 is concerning!) that you should know about.
While WEC Energy Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
