Here's What To Make Of Excelerate Energy's (NYSE:EE) Decelerating Rates Of Return
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Excelerate Energy (NYSE:EE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding 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. To calculate this metric for Excelerate Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = US$229m ÷ (US$2.9b - US$173m) (Based on the trailing twelve months to September 2023).
Therefore, Excelerate Energy has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 17%.
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 to see what analysts are forecasting going forward, you should check out our free report for Excelerate Energy.
How Are Returns Trending?
In terms of Excelerate Energy's historical ROCE trend, it doesn't exactly demand attention. The company has employed 34% more capital in the last three years, and the returns on that capital have remained stable at 8.4%. 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.
Our Take On Excelerate Energy's ROCE
As we've seen above, Excelerate Energy's returns on capital haven't increased but it is reinvesting in the business. And in the last year, the stock has given away 32% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
On a separate note, we've found 1 warning sign for Excelerate Energy you'll probably want to know about.
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.
