Returns At Alternus Energy Group (OB:ALT) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Alternus Energy Group (OB:ALT) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Alternus Energy Group:

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

0.027 = €5.6m ÷ (€217m - €13m) (Based on the trailing twelve months to March 2022).

Thus, Alternus Energy Group has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.9%.

View our latest analysis for Alternus Energy Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alternus Energy Group's ROCE against it's prior returns. If you'd like to look at how Alternus Energy Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Alternus Energy Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses one year ago, but now it's earning 2.7% which is a sight for sore eyes. Not only that, but the company is utilizing 134% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 6.1%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Alternus Energy Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Alternus Energy Group's ROCE

Overall, Alternus Energy Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 29% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Alternus Energy Group we've found 5 warning signs (1 is significant!) that you should be aware of before investing here.

While Alternus Energy Group 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.