Stock Analysis

Return Trends At Duke Energy (NYSE:DUK) Aren't Appealing

NYSE:DUK
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Duke Energy (NYSE:DUK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Advertisement

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Duke Energy:

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

0.038 = US$5.6b ÷ (US$163b - US$17b) (Based on the trailing twelve months to March 2021).

Thus, Duke Energy has an ROCE of 3.8%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 4.5%.

See our latest analysis for Duke Energy

roce
NYSE:DUK Return on Capital Employed June 6th 2021

Above you can see how the current ROCE for Duke Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Duke Energy's ROCE Trending?

The returns on capital haven't changed much for Duke Energy in recent years. The company has consistently earned 3.8% for the last five years, and the capital employed within the business has risen 32% 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 Duke Energy's ROCE

As we've seen above, Duke Energy's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 55% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 6 warning signs we've spotted with Duke Energy (including 1 which is significant) .

While Duke Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you’re looking to trade Duke Energy, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


New: Manage All Your Stock Portfolios in One Place

We've created the ultimate portfolio companion for stock investors, and it's free.

• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks

Try a Demo Portfolio for Free

This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.