Why You Should Care About Genie Energy's (NYSE:GNE) Strong Returns On Capital
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ergo, when we looked at the ROCE trends at Genie Energy (NYSE:GNE), we liked what we saw.
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 Genie Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$62m ÷ (US$316m - US$106m) (Based on the trailing twelve months to September 2023).
So, Genie Energy has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 4.6% earned by companies in a similar industry.
See our latest analysis for Genie Energy
Historical performance is a great place to start when researching a stock so above you can see the gauge for Genie Energy's ROCE against it's prior returns. If you'd like to look at how Genie Energy has performed in the past in other metrics, you can view this free graph of Genie Energy's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
It's hard not to be impressed by Genie Energy's returns on capital. The company has consistently earned 29% for the last five years, and the capital employed within the business has risen 154% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
The Key Takeaway
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 135% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
On a separate note, we've found 3 warning signs for Genie Energy you'll probably want to know about.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
