Unitil (NYSE:UTL) Has More To Do To Multiply In Value Going Forward
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Unitil (NYSE:UTL), we don't think it's current trends fit the mold of a multi-bagger.
What Is 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. Analysts use this formula to calculate it for Unitil:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.062 = US$86m ÷ (US$1.6b - US$243m) (Based on the trailing twelve months to September 2023).
Therefore, Unitil has an ROCE of 6.2%. In absolute terms, that's a low return, but it's much better than the Integrated Utilities industry average of 5.1%.
See our latest analysis for Unitil
In the above chart we have measured Unitil'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 Unitil.
What Does the ROCE Trend For Unitil Tell Us?
There are better returns on capital out there than what we're seeing at Unitil. The company has consistently earned 6.2% for the last five years, and the capital employed within the business has risen 27% in that time. 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
Long story short, while Unitil has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 28% 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.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Unitil (of which 1 can't be ignored!) that you should 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.
