Yahoo Finance The Return Trends At EnLink Midstream (NYSE:ENLC) Look Promising
To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, EnLink Midstream (NYSE:ENLC) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for EnLink Midstream, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = US$713m ÷ (US$8.3b - US$994m) (Based on the trailing twelve months to December 2023).
Thus, EnLink Midstream has an ROCE of 9.7%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 15%.
View our latest analysis for EnLink Midstream
Above you can see how the current ROCE for EnLink Midstream compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering EnLink Midstream for free.
The Trend Of ROCE
We're pretty happy with how the ROCE has been trending at EnLink Midstream. We found that the returns on capital employed over the last five years have risen by 76%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 22% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
In Conclusion...
In a nutshell, we're pleased to see that EnLink Midstream has been able to generate higher returns from less capital. Since the stock has returned a solid 64% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
EnLink Midstream does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is concerning...
While EnLink Midstream 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.
