Naturgy Energy Group (BME:NTGY) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to 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 on that note, Naturgy Energy Group (BME:NTGY) looks quite promising in regards to its trends of return on capital.

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 Naturgy Energy Group, this is the formula:

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

0.11 = €3.3b ÷ (€40b - €9.8b) (Based on the trailing twelve months to December 2022).

Therefore, Naturgy Energy Group has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Gas Utilities industry average of 6.8% it's much better.

See our latest analysis for Naturgy Energy Group

Above you can see how the current ROCE for Naturgy 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 Naturgy Energy Group.

SWOT Analysis for Naturgy Energy Group

How Are Returns Trending?

Naturgy Energy Group has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 95% over the trailing five years. The company is now earning €0.1 per dollar of capital employed. In regards to capital employed, Naturgy Energy Group appears to been achieving more with less, since the business is using 23% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In a nutshell, we're pleased to see that Naturgy Energy Group has been able to generate higher returns from less capital. Since the stock has returned a solid 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Naturgy Energy Group can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Naturgy Energy Group we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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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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.