There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Public Service Enterprise Group (NYSE:PEG) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Public Service Enterprise Group, this is the formula:

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

0.049 = US$2.3b ÷ (US$52b - US$5.5b) (Based on the trailing twelve months to June 2024).

Thus, Public Service Enterprise Group has an ROCE of 4.9%. Even though it's in line with the industry average of 5.0%, it's still a low return by itself.

Check out our latest analysis for Public Service Enterprise Group

In the above chart we have measured Public Service Enterprise Group'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 Public Service Enterprise Group for free.

What Can We Tell From Public Service Enterprise Group's ROCE Trend?

Things have been pretty stable at Public Service Enterprise Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Public Service Enterprise Group to be a multi-bagger going forward. That probably explains why Public Service Enterprise Group has been paying out 60% of its earnings as dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

Our Take On Public Service Enterprise Group's ROCE

We can conclude that in regards to Public Service Enterprise Group's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 71% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.