Return Trends At Eversource Energy (NYSE:ES) Aren't Appealing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Eversource Energy (NYSE:ES), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Eversource Energy:

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

0.051 = US$2.7b ÷ (US$58b - US$6.3b) (Based on the trailing twelve months to June 2024).

Therefore, Eversource Energy has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.7%.

Check out our latest analysis for Eversource Energy

Above you can see how the current ROCE for Eversource 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 analyst report for Eversource Energy .

What Can We Tell From Eversource Energy's ROCE Trend?

In terms of Eversource Energy's historical ROCE trend, it doesn't exactly demand attention. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 5.1%. 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, Eversource Energy has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Eversource Energy (of which 2 don't sit too well with us!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.