Northwest Natural Holding (NYSE:NWN) has more to do to multiply its value in the future

Finding a company that has the potential to grow significantly is not easy, but it is possible if we look at some key financial metrics. A common approach is to find a company that returns on capital employed (ROCE), combined with a growing Crowd of the capital employed. Essentially, this means that a company has profitable initiatives in which it can continue to reinvest, which is a characteristic of a compounding machine. Although, as we looked Nordwest Natural Holding (NYSE:NWN) did not seem to meet all of these criteria.

Understanding Return on Capital Employed (ROCE)

Just to clarify in case you aren’t sure, ROCE is a ratio that evaluates how much pre-tax profit (as a percentage) a company generates with the capital invested in its business. To calculate this ratio for Northwest Natural Holding, the formula is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.042 = $182 million ÷ ($4.8 billion – $468 million) (Based on the last twelve months to March 2024).

Therefore, Northwest Natural Holding has a ROCE of 4.2%. Ultimately, this is a low return and is below the gas utility industry average of 6.1%.

Check out our latest analysis for Northwest Natural Holding

Above you can see how the current ROCE for Northwest Natural Holding compares to previous returns on capital, but there is only so much that can be said from the past. If you want to know what analysts are forecasting for the future, you should check out our free analyst report for Northwest Natural Holding.

What can we learn from Northwest Natural Holding’s ROCE trend?

Return on capital has not changed much for Northwest Natural Holding over the past few years. The company has consistently earned 4.2% over the past five years, and the capital employed in the company has grown 64% during that time. Given that the company has increased the amount of capital employed, the investments being made simply do not seem to offer a high return on capital.

The conclusion

As we saw above, Northwest Natural Holding’s returns on capital have not been increasing, but the company is investing in the business. With the stock down 37% over the past five years, investors may not be too optimistic that this trend will improve either. Overall, we are not too excited about the underlying trends and believe there may be better opportunities to find a multibagger elsewhere.

However, Northwest Natural Holding carries some risks, as we found 3 warning signals in our investment analysis, and one of them may be serious…

For those who like to invest in solid companies, look at that free List of companies with solid balance sheets and high returns on equity.

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]