Return Trends At Northwest Natural Holding (NYSE:NWN) Aren't Appealing
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Northwest Natural Holding (NYSE:NWN) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
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 Northwest Natural Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = US$194m ÷ (US$4.5b - US$571m) (Based on the trailing twelve months to June 2023).
So, Northwest Natural Holding has an ROCE of 4.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.4%.
Check out our latest analysis for Northwest Natural Holding
In the above chart we have measured Northwest Natural Holding'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 Northwest Natural Holding.
So How Is Northwest Natural Holding's ROCE Trending?
In terms of Northwest Natural Holding's historical ROCE trend, it doesn't exactly demand attention. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 4.9%. 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.
What We Can Learn From Northwest Natural Holding's ROCE
In summary, Northwest Natural Holding 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 31% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Northwest Natural Holding does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
