The Returns At Hawaiian Electric Industries (NYSE:HE) Aren't Growing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Hawaiian Electric Industries (NYSE:HE), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Hawaiian Electric Industries is:

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

0.025 = US$382m ÷ (US$16b - US$830m) (Based on the trailing twelve months to September 2022).

So, Hawaiian Electric Industries has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 4.6%.

View our latest analysis for Hawaiian Electric Industries

Above you can see how the current ROCE for Hawaiian Electric Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hawaiian Electric Industries.

How Are Returns Trending?

In terms of Hawaiian Electric Industries' historical ROCE trend, it doesn't exactly demand attention. The company has employed 23% more capital in the last five years, and the returns on that capital have remained stable at 2.5%. 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

As we've seen above, Hawaiian Electric Industries' returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 42% 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 Hawaiian Electric Industries we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Hawaiian Electric Industries 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.