Return Trends At WEC Energy Group (NYSE:WEC) Aren't Appealing
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think WEC Energy Group (NYSE:WEC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. To calculate this metric for WEC Energy Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = US$2.2b ÷ (US$44b - US$5.1b) (Based on the trailing twelve months to December 2023).
Therefore, WEC Energy Group has an ROCE of 5.6%. On its own, that's a low figure but it's around the 4.9% average generated by the Integrated Utilities industry.
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 to see what analysts are forecasting going forward, you should check out our free analyst report for WEC Energy Group .
How Are Returns Trending?
The returns on capital haven't changed much for WEC Energy Group in recent years. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 5.6%. 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 On WEC Energy Group's ROCE
Long story short, while WEC Energy Group has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 20% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you want to know some of the risks facing WEC Energy Group we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.
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.
