Is AES Gener (SNSE:AESGENER) A Future Multi-bagger?

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at AES Gener (SNSE:AESGENER) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for AES Gener, this is the formula:

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

0.091 = US$639m ÷ (US$8.4b - US$1.4b) (Based on the trailing twelve months to September 2020).

Thus, AES Gener has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 7.4% generated by the Renewable Energy industry, it's much better.

View our latest analysis for AES Gener

In the above chart we have measured AES Gener'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 free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

AES Gener has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 49% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From AES Gener's ROCE

To sum it up, AES Gener is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 21% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for AES Gener (of which 1 makes us a bit uncomfortable!) that you should know about.

While AES Gener 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. 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.
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