National Fuel Gas (NYSE:NFG) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at National Fuel Gas (NYSE:NFG) and its trend of ROCE, we really liked what we saw.

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Understanding 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. Analysts use this formula to calculate it for National Fuel Gas:

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

0.12 = US$845m ÷ (US$8.5b - US$1.2b) (Based on the trailing twelve months to March 2025).

Thus, National Fuel Gas has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Gas Utilities industry.

Check out our latest analysis for National Fuel Gas

In the above chart we have measured National Fuel Gas' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for National Fuel Gas .

What Can We Tell From National Fuel Gas' ROCE Trend?

National Fuel Gas' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 50% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To sum it up, National Fuel Gas is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 149% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if National Fuel Gas can keep these trends up, it could have a bright future ahead.

National Fuel Gas does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While National Fuel Gas 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.