Returns At Xcel Energy (NASDAQ:XEL) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount 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 Xcel Energy (NASDAQ:XEL) and its ROCE trend, we weren’t exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Xcel Energy is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.044 = US$2.7b ÷ (US$68b – US$5.9b) (Based on the trailing twelve months to June 2024).

Thus, Xcel Energy has an ROCE of 4.4%. In absolute terms, that’s a low return but it’s around the Electric Utilities industry average of 4.7%.

See our latest analysis for Xcel Energy

Above you can see how the current ROCE for Xcel Energy 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 Xcel Energy .

What The Trend Of ROCE Can Tell Us

The returns on capital haven’t changed much for Xcel Energy in recent years. Over the past five years, ROCE has remained relatively flat at around 4.4% and the business has deployed 43% more capital into its operations. 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, Xcel Energy has been investing more capital into the business, but returns on that capital haven’t increased. And investors may be recognizing these trends since the stock has only returned a total of 18% to shareholders over the last five years. So if you’re looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Xcel Energy does have some risks, we noticed 2 warning signs (and 1 which can’t be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.