Investors Met With Slowing Returns on Capital At Xcel Energy (NASDAQ:XEL)

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Xcel Energy (NASDAQ:XEL), we don't think it's current trends fit the mold of a multi-bagger.

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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 Xcel Energy:

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

0.036 = US$2.4b ÷ (US$73b - US$6.7b) (Based on the trailing twelve months to March 2025).

Thus, Xcel Energy has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 5.1%.

See our latest analysis for Xcel Energy

In the above chart we have measured Xcel Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Xcel Energy .

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Xcel Energy in recent years. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 3.6%. 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.

What We Can Learn From Xcel Energy's ROCE

In summary, Xcel Energy has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 25% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Xcel Energy we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing 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.