Portland General Electric's (NYSE:POR) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Portland General Electric (NYSE:POR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Portland General Electric, this is the formula:

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

0.046 = US$520m ÷ (US$13b - US$1.1b) (Based on the trailing twelve months to December 2024).

So, Portland General Electric has an ROCE of 4.6%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.

See our latest analysis for Portland General Electric

Above you can see how the current ROCE for Portland General Electric compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Portland General Electric for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Portland General Electric in recent years. Over the past five years, ROCE has remained relatively flat at around 4.6% and the business has deployed 45% more capital into its operations. 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, Portland General Electric has simply been reinvesting capital and generating the same low rate of return as before. And investors appear hesitant that the trends will pick up because the stock has fallen 18% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 2 warning signs for Portland General Electric (1 is a bit concerning) you should be aware of.

While Portland General Electric 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.