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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Xcel Energy (NASDAQ:XEL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. To calculate this metric for Xcel Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = US$2.4b ÷ (US$73b - US$6.7b) (Based on the trailing twelve months to March 2025).
So, Xcel Energy has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 5.1%.
See our latest analysis for Xcel Energy
In the above chart we have measured Xcel 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 Xcel Energy for free.
How Are Returns Trending?
In terms of Xcel Energy's historical ROCE trend, it doesn't exactly demand attention. The company has employed 46% more capital in the last five years, and the returns on that capital have remained stable at 3.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
In Conclusion...
In summary, Xcel Energy has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 40% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
One more thing: We've identified 2 warning signs with Xcel Energy (at least 1 which can't be ignored) , and understanding them would certainly be useful.
While Xcel Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.