Stock Analysis

Returns At New Jersey Resources (NYSE:NJR) Appear To Be Weighed Down

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think New Jersey Resources (NYSE:NJR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for New Jersey Resources:

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

0.054 = US$271m ÷ (US$5.9b - US$882m) (Based on the trailing twelve months to March 2022).

So, New Jersey Resources has an ROCE of 5.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.

Check out our latest analysis for New Jersey Resources

NYSE:NJR Return on Capital Employed May 12th 2022

In the above chart we have measured New Jersey Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering New Jersey Resources here for free.

What The Trend Of ROCE Can Tell Us

In terms of New Jersey Resources' historical ROCE trend, it doesn't exactly demand attention. The company has employed 54% more capital in the last five years, and the returns on that capital have remained stable at 5.4%. 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.

The Key Takeaway

In summary, New Jersey Resources has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 26% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about New Jersey Resources, we've spotted 3 warning signs, and 2 of them are potentially serious.

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

What are the risks and opportunities for New Jersey Resources?

New Jersey Resources Corporation, an energy services holding company, distributes natural gas.

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  • Trading at 4.2% below our estimate of its fair value

  • Earnings are forecast to grow 6.03% per year


  • Debt is not well covered by operating cash flow

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