Under The Bonnet, Genie Energy's (NYSE:GNE) Returns Look Impressive

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of Genie Energy (NYSE:GNE) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Genie Energy is:

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

0.24 = US$55m ÷ (US$331m - US$98m) (Based on the trailing twelve months to December 2023).

Therefore, Genie Energy has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Electric Utilities industry average of 4.6%.

View our latest analysis for Genie Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Genie Energy's ROCE against it's prior returns. If you're interested in investigating Genie Energy's past further, check out this free graph covering Genie Energy's past earnings, revenue and cash flow.

What Does the ROCE Trend For Genie Energy Tell Us?

We like the trends that we're seeing from Genie Energy. The data shows that returns on capital have increased substantially over the last five years to 24%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 142%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Genie Energy's ROCE

All in all, it's terrific to see that Genie Energy is reaping the rewards from prior investments and is growing its capital base. And a remarkable 116% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Genie Energy, you might be interested to know about the 4 warning signs that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.