Slowing Rates Of Return At Middlesex Water (NASDAQ:MSEX) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Middlesex Water (NASDAQ:MSEX), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding 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. To calculate this metric for Middlesex Water, this is the formula:

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

0.048 = US$58m ÷ (US$1.3b - US$118m) (Based on the trailing twelve months to September 2025).

Thus, Middlesex Water has an ROCE of 4.8%. Even though it's in line with the industry average of 4.8%, it's still a low return by itself.

Check out our latest analysis for Middlesex Water

In the above chart we have measured Middlesex Water's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Middlesex Water .

So How Is Middlesex Water's ROCE Trending?

There are better returns on capital out there than what we're seeing at Middlesex Water. The company has consistently earned 4.8% for the last five years, and the capital employed within the business has risen 40% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Middlesex Water's ROCE

Long story short, while Middlesex Water has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 25% in the last five years. Therefore based on the analysis done in this article, we don't think Middlesex Water has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with Middlesex Water (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

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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.