Stock Analysis

The Trends At Enel Américas (SNSE:ENELAM) That You Should Know About

SNSE:ENELAM
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Enel Américas (SNSE:ENELAM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Enel Américas, this is the formula:

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

0.13 = US$2.4b ÷ (US$25b - US$6.2b) (Based on the trailing twelve months to March 2020).

So, Enel Américas has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Electric Utilities industry.

See our latest analysis for Enel Américas

SNSE:ENELAM Return on Capital Employed July 3rd 2020
SNSE:ENELAM Return on Capital Employed July 3rd 2020

Above you can the how the current ROCE for Enel Américas' compares to it's prior returns on capital, but you can only tell so much from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Enel Américas.

What Can We Tell From Enel Américas' ROCE Trend?

There hasn't been much to report for Enel Américas' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Enel Américas doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In summary, Enel Américas isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 39% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Enel Américas, you might be interested to know about the 3 warning signs that our analysis has discovered.

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

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