Stock Analysis

Chesapeake Utilities (NYSE:CPK) Has Some Way To Go To Become A Multi-Bagger

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NYSE:CPK
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Chesapeake Utilities (NYSE:CPK) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Chesapeake Utilities, this is the formula:

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

0.075 = US$137m ÷ (US$2.1b - US$287m) (Based on the trailing twelve months to June 2022).

So, Chesapeake Utilities has an ROCE of 7.5%. In absolute terms, that's a low return, but it's much better than the Gas Utilities industry average of 5.4%.

See our latest analysis for Chesapeake Utilities

roce
NYSE:CPK Return on Capital Employed August 8th 2022

In the above chart we have measured Chesapeake Utilities' 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 report for Chesapeake Utilities.

How Are Returns Trending?

In terms of Chesapeake Utilities' historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 7.5% and the business has deployed 86% more capital into its operations. 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.

Our Take On Chesapeake Utilities' ROCE

In summary, Chesapeake Utilities has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 84% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Chesapeake Utilities we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Chesapeake Utilities is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:CPK

Chesapeake Utilities

Chesapeake Utilities Corporation operates as an energy delivery company.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation0
Future Growth1
Past Performance2
Financial Health1
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Average dividend payer with questionable track record.