Excelerate Energy (NYSE:EE) Has More To Do To Multiply In Value Going Forward
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Excelerate Energy (NYSE:EE), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Excelerate Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.075 = US$201m ÷ (US$3.0b - US$310m) (Based on the trailing twelve months to March 2023).
Therefore, Excelerate Energy has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 23%.
Check out our latest analysis for Excelerate Energy
In the above chart we have measured Excelerate Energy's 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 Excelerate Energy here for free.
What Does the ROCE Trend For Excelerate Energy Tell Us?
There are better returns on capital out there than what we're seeing at Excelerate Energy. Over the past three years, ROCE has remained relatively flat at around 7.5% and the business has deployed 35% 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, Excelerate Energy 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 23% in the last year. Therefore based on the analysis done in this article, we don't think Excelerate Energy has the makings of a multi-bagger.
On a final note, we've found 1 warning sign for Excelerate Energy that we think you should be aware of.
While Excelerate Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
