Return Trends At Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Terna Energy Societe Anonyme Commercial Technical:

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

0.078 = €144m ÷ (€2.1b - €211m) (Based on the trailing twelve months to September 2022).

Thus, Terna Energy Societe Anonyme Commercial Technical has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 6.6%.

Check out our latest analysis for Terna Energy Societe Anonyme Commercial Technical

Above you can see how the current ROCE for Terna Energy Societe Anonyme Commercial Technical compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Terna Energy Societe Anonyme Commercial Technical Tell Us?

In terms of Terna Energy Societe Anonyme Commercial Technical's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.8% for the last five years, and the capital employed within the business has risen 51% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Terna Energy Societe Anonyme Commercial Technical has done well to reduce current liabilities to 10% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Terna Energy Societe Anonyme Commercial Technical's ROCE

In summary, Terna Energy Societe Anonyme Commercial Technical has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 338% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Terna Energy Societe Anonyme Commercial Technical (of which 2 are potentially serious!) that you should know about.

While Terna Energy Societe Anonyme Commercial Technical 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.