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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Bloom Energy (NYSE:BE) and its trend of ROCE, we really liked what we saw.
We've discovered 2 warning signs about Bloom Energy. View them for free.
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. To calculate this metric for Bloom Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = US$23m ÷ (US$2.7b - US$637m) (Based on the trailing twelve months to December 2024).
Thus, Bloom Energy has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Electrical industry average of 11%.
Check out our latest analysis for Bloom Energy
Above you can see how the current ROCE for Bloom Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bloom Energy for free.
What Does the ROCE Trend For Bloom Energy Tell Us?
The fact that Bloom Energy is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.1% which is a sight for sore eyes. Not only that, but the company is utilizing 170% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 24%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
The Bottom Line
To the delight of most shareholders, Bloom Energy has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.