Returns At Boralex (TSE:BLX) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Although, when we looked at Boralex (TSE:BLX), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Boralex is:

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

0.03 = CA$173m ÷ (CA$6.7b - CA$822m) (Based on the trailing twelve months to June 2023).

So, Boralex has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 4.2%.

See our latest analysis for Boralex

In the above chart we have measured Boralex's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Boralex here for free.

The Trend Of ROCE

The returns on capital haven't changed much for Boralex in recent years. Over the past five years, ROCE has remained relatively flat at around 3.0% and the business has deployed 51% more capital into its operations. 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 On Boralex's ROCE

In summary, Boralex has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 96% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 3 warning signs for Boralex (1 can't be ignored) you should be aware of.

While Boralex 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.

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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.