The Returns At REN - Redes Energéticas Nacionais SGPS (ELI:RENE) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. In light of that, when we looked at REN - Redes Energéticas Nacionais SGPS (ELI:RENE) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.057 = €214m ÷ (€5.3b - €1.5b) (Based on the trailing twelve months to September 2024).

So, REN - Redes Energéticas Nacionais SGPS has an ROCE of 5.7%. On its own, that's a low figure but it's around the 6.6% average generated by the Integrated Utilities industry.

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.

What Can We Tell From REN - Redes Energéticas Nacionais SGPS' ROCE Trend?

Over the past five years, REN - Redes Energéticas Nacionais SGPS' ROCE and capital employed have both remained mostly flat. 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 89% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In a nutshell, REN - Redes Energéticas Nacionais SGPS has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 21% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for REN - Redes Energéticas Nacionais SGPS (2 are concerning) you should be aware of.

While REN - Redes Energéticas Nacionais SGPS 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.