Returns On Capital At Portland General Electric (NYSE:POR) Paint A Concerning Picture
What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Portland General Electric (NYSE:POR) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Portland General Electric, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.039 = US$387m ÷ (US$11b - US$636m) (Based on the trailing twelve months to September 2023).
Therefore, Portland General Electric has an ROCE of 3.9%. Even though it's in line with the industry average of 4.4%, it's still a low return by itself.
View our latest analysis for Portland General Electric
Above you can see how the current ROCE for Portland General Electric 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 report for Portland General Electric.
What Can We Tell From Portland General Electric's ROCE Trend?
In terms of Portland General Electric's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 4.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
In Conclusion...
In summary, despite lower returns in the short term, we're encouraged to see that Portland General Electric is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 1.4% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
If you want to know some of the risks facing Portland General Electric we've found 3 warning signs (1 doesn't sit too well with us!) 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.
