Yahoo Finance Here's What To Make Of Excelerate Energy's (NYSE:EE) Decelerating Rates Of Return
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Excelerate Energy (NYSE:EE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is 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. Analysts use this formula to calculate it for Excelerate Energy:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = US$206m ÷ (US$2.9b - US$197m) (Based on the trailing twelve months to March 2024).
Thus, Excelerate Energy has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.
Check out our latest analysis for Excelerate Energy
In the above chart we have measured Excelerate Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Excelerate Energy for free.
What The Trend Of ROCE Can Tell Us
The returns on capital haven't changed much for Excelerate Energy in recent years. The company has employed 33% more capital in the last four years, and the returns on that capital have remained stable at 7.7%. 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.
In Conclusion...
In conclusion, Excelerate Energy has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 14% over the last year, investors may not be too optimistic on this trend improving either. 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.
If you're still interested in Excelerate Energy it's worth checking out our FREE intrinsic value approximation for EE to see if it's trading at an attractive price in other respects.
While Excelerate Energy may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
