Alliant Energy (NASDAQ:LNT) Has More To Do To Multiply In Value Going Forward
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Alliant Energy (NASDAQ:LNT), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Alliant Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.048 = US$875m ÷ (US$20b - US$1.9b) (Based on the trailing twelve months to March 2023).
Therefore, Alliant Energy has an ROCE of 4.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.6%.
View our latest analysis for Alliant Energy
In the above chart we have measured Alliant Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Alliant Energy.
What The Trend Of ROCE Can Tell Us
There are better returns on capital out there than what we're seeing at Alliant Energy. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 4.8%. 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 Bottom Line
Long story short, while Alliant Energy has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 49% 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'd like to know more about Alliant Energy, we've spotted 2 warning signs, and 1 of them is potentially serious.
While Alliant Energy may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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