Yahoo Finance Boralex (TSE:BLX) Might Have The Makings Of A Multi-Bagger
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Boralex's (TSE:BLX) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Boralex, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = CA$182m ÷ (CA$6.3b - CA$510m) (Based on the trailing twelve months to September 2022).
So, Boralex has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 4.6%.
Check out our latest analysis for Boralex
Above you can see how the current ROCE for Boralex compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 72% more capital is being employed now too. So we're very much inspired by what we're seeing at Boralex thanks to its ability to profitably reinvest capital.
Our Take On Boralex's ROCE
All in all, it's terrific to see that Boralex is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 84% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Boralex can keep these trends up, it could have a bright future ahead.
Boralex does have some risks though, and we've spotted 1 warning sign for Boralex that you might be interested in.
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.
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