Investors Met With Slowing Returns on Capital At REN - Redes Energéticas Nacionais SGPS (ELI:RENE)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at REN - Redes Energéticas Nacionais SGPS (ELI:RENE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for REN - Redes Energéticas Nacionais SGPS, this is the formula:

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

0.05 = €198m ÷ (€5.4b - €1.4b) (Based on the trailing twelve months to December 2024).

So, REN - Redes Energéticas Nacionais SGPS has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Integrated Utilities industry average of 7.5%.

Check out our latest analysis for REN - Redes Energéticas Nacionais SGPS

Above you can see how the current ROCE for REN - Redes Energéticas Nacionais SGPS compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering REN - Redes Energéticas Nacionais SGPS for free.

How Are Returns Trending?

There hasn't been much to report for REN - Redes Energéticas Nacionais SGPS' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if REN - Redes Energéticas Nacionais SGPS doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that REN - Redes Energéticas Nacionais SGPS has been paying out 76% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

In Conclusion...

We can conclude that in regards to REN - Redes Energéticas Nacionais SGPS' returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 65% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for REN - Redes Energéticas Nacionais SGPS (of which 1 doesn't sit too well with us!) that you should know about.

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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.