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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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?

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. Analysts use this formula to calculate it for Xcel Energy:

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%. On its own, that's a low figure but it's around the 4.7% average generated by the Electric Utilities industry.

Check out 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 .

So How Is Xcel Energy's ROCE Trending?

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.

The Bottom Line

As we've seen above, Xcel Energy's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 13% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Xcel Energy we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.