Terna - Rete Elettrica Nazionale Società per Azioni (BIT:TRN) Has Some Way To Go To Become A 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'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. However, after investigating Terna - Rete Elettrica Nazionale Società per Azioni (BIT:TRN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Terna - Rete Elettrica Nazionale Società per Azioni, this is the formula:

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

0.073 = €1.2b ÷ (€23b - €7.0b) (Based on the trailing twelve months to June 2022).

Thus, Terna - Rete Elettrica Nazionale Società per Azioni has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.5% average generated by the Electric Utilities industry.

See our latest analysis for Terna - Rete Elettrica Nazionale Società per Azioni

Above you can see how the current ROCE for Terna - Rete Elettrica Nazionale Società per Azioni 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 Can We Tell From Terna - Rete Elettrica Nazionale Società per Azioni's ROCE Trend?

There are better returns on capital out there than what we're seeing at Terna - Rete Elettrica Nazionale Società per Azioni. The company has employed 37% more capital in the last five years, and the returns on that capital have remained stable at 7.3%. 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.

In Conclusion...

In conclusion, Terna - Rete Elettrica Nazionale Società per Azioni has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 83% 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.

Terna - Rete Elettrica Nazionale Società per Azioni does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.