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Sep 21, 2023

Returns On Capital At Portland General Electric (NYSE:POR) Have Hit The Brakes

Stock Analysis What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital

Stock Analysis

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 investigating Portland General Electric (NYSE:POR), we don't think it's current trends fit the mold of a multi-bagger.

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Portland General Electric:

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

0.04 = US$382m ÷ (US$10b - US$761m) (Based on the trailing twelve months to June 2023).

Thus, Portland General Electric has an ROCE of 4.0%. On its own, that's a low figure but it's around the 4.5% average generated by the Electric Utilities industry.

Check out our latest analysis for Portland General Electric

Above you can see how the current ROCE for Portland General Electric 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.

There are better returns on capital out there than what we're seeing at Portland General Electric. Over the past five years, ROCE has remained relatively flat at around 4.0% and the business has deployed 33% more capital into its operations. 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.

As we've seen above, Portland General Electric's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 24% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Portland General Electric (of which 1 doesn't sit too well with us!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

What are the risks and opportunities for Portland General Electric?

NYSE:POR

Portland General Electric

Portland General Electric Company, an integrated electric utility company, engages in the generation, wholesale purchase, transmission, distribution, and retail sale of electricity in the state of Oregon.Show more

Rewards

Trading at 55.8% below our estimate of its fair value

Earnings are forecast to grow 11.19% per year

Risks

Interest payments are not well covered by earnings

Shareholders have been diluted in the past year

Share Price

Market Cap

1Y Return

Further research onPortland General Electric

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Portland General Electric Company, an integrated electric utility company, engages in the generation, wholesale purchase, transmission, distribution, and retail sale of electricity in the state of Oregon.

Average dividend payer and slightly overvalued.