If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Ameren (NYSE:AEE), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ameren:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = US$1.9b ÷ (US$42b - US$3.3b) (Based on the trailing twelve months to June 2024).
Therefore, Ameren has an ROCE of 4.9%. Even though it's in line with the industry average of 5.0%, it's still a low return by itself.
See our latest analysis for Ameren
In the above chart we have measured Ameren'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 Ameren .
What Does the ROCE Trend For Ameren Tell Us?
The returns on capital haven't changed much for Ameren in recent years. The company has consistently earned 4.9% for the last five years, and the capital employed within the business has risen 54% 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.
The Key Takeaway
In conclusion, Ameren has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 21% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
Ameren does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.
While Ameren 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.
About NYSE:AEE
Ameren
Operates as a public utility holding company in the United States.
Average dividend payer with acceptable track record.
