WEC Energy Group (NYSE:WEC) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at WEC Energy Group (NYSE:WEC), it didn't seem to tick all of these boxes.

What Is 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. The formula for this calculation on WEC Energy Group is:

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

0.051 = US$2.0b ÷ (US$43b - US$4.1b) (Based on the trailing twelve months to September 2023).

So, WEC Energy Group has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.1%.

Check out our latest analysis for WEC Energy Group

Above you can see how the current ROCE for WEC Energy Group 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 WEC Energy Group here for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at WEC Energy Group. The company has employed 36% more capital in the last five years, and the returns on that capital have remained stable at 5.1%. 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.

What We Can Learn From WEC Energy Group's ROCE

In summary, WEC Energy Group has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 35% 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.

One more thing: We've identified 2 warning signs with WEC Energy Group (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.