- United Kingdom
- Commercial Services
The Return Trends At eEnergy Group (LON:EAAS) Look Promising
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, eEnergy Group (LON:EAAS) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on eEnergy Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.06 = UK£1.9m ÷ (UK£50m - UK£17m) (Based on the trailing twelve months to December 2022).
Thus, eEnergy Group has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.3%.
See our latest analysis for eEnergy Group
In the above chart we have measured eEnergy Group'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 Can We Tell From eEnergy Group's ROCE Trend?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last one year, the returns generated on capital employed have grown considerably to 6.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 160%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line On eEnergy Group's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what eEnergy Group has. Since the total return from the stock has been almost flat over the last three years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.
If you'd like to know more about eEnergy Group, we've spotted 3 warning signs, and 2 of them make us uncomfortable.
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.
eEnergy Group plc, together with its subsidiaries, operates as an integrated energy services company in the United Kingdom and Ireland.
High growth potential with adequate balance sheet.