Alliant Energy (NASDAQ:LNT) Has More To Do To Multiply In Value Going Forward

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Alliant Energy (NASDAQ:LNT), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Alliant Energy:

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

0.051 = US$872m ÷ (US$19b - US$2.3b) (Based on the trailing twelve months to June 2022).

So, Alliant Energy has an ROCE of 5.1%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 4.4%.

View our latest analysis for Alliant Energy

Above you can see how the current ROCE for Alliant Energy 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 Alliant Energy here for free.

What Can We Tell From Alliant Energy's ROCE Trend?

In terms of Alliant Energy's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.1% for the last five years, and the capital employed within the business has risen 37% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Alliant Energy's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 50% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing: We've identified 2 warning signs with Alliant Energy (at least 1 which is concerning) , and understanding these would certainly be useful.

While Alliant Energy 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.