Is Federal Hydro-Generating Company - RusHydro (MCX:HYDR) A Future Multi-bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Federal Hydro-Generating Company - RusHydro (MCX:HYDR) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Federal Hydro-Generating Company - RusHydro:

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

0.11 = ₽91b ÷ (₽975b - ₽146b) (Based on the trailing twelve months to September 2020).

Therefore, Federal Hydro-Generating Company - RusHydro has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 7.7% it's much better.

See our latest analysis for Federal Hydro-Generating Company - RusHydro

Above you can see how the current ROCE for Federal Hydro-Generating Company - RusHydro compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Federal Hydro-Generating Company - RusHydro.

The Trend Of ROCE

Federal Hydro-Generating Company - RusHydro's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 127% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Federal Hydro-Generating Company - RusHydro appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 56% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Federal Hydro-Generating Company - RusHydro can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Federal Hydro-Generating Company - RusHydro that you might find interesting.

While Federal Hydro-Generating Company - RusHydro 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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