Investors Will Want Energizer Holdings' (NYSE:ENR) Growth In ROCE To Persist

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 Energizer Holdings (NYSE:ENR) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Energizer Holdings is:

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

0.13 = US$469m ÷ (US$4.2b - US$701m) (Based on the trailing twelve months to June 2024).

Thus, Energizer Holdings has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 17% generated by the Household Products industry.

Check out our latest analysis for Energizer Holdings

Above you can see how the current ROCE for Energizer Holdings 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 Energizer Holdings for free.

What The Trend Of ROCE Can Tell Us

Energizer Holdings has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 57%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 21% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In the end, Energizer Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Given the stock has declined 19% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Energizer Holdings does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

While Energizer Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.