Why is xel stock dropping?

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 Xcel Energy:

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

0.043 = US$2.4b ÷ (US$61b - US$6.1b) (Based on the trailing twelve months to December 2022).

Thus, Xcel Energy has an ROCE of 4.3%. On its own, that's a low figure but it's around the 4.7% average generated by the Electric Utilities industry.

See our latest analysis for Xcel Energy

In the above chart we have measured Xcel Energy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

In terms of Xcel Energy's historical ROCE trend, it doesn't exactly demand attention. The company has employed 42% more capital in the last five years, and the returns on that capital have remained stable at 4.3%. 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.

In summary, Xcel Energy has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 80% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Xcel Energy does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is concerning...

While Xcel Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.