Here’s What To Make Of Edison International’s (NYSE:EIX) Decelerating Rates Of Return

Semangat Membara

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Edison International (NYSE:EIX), we don’t think it’s current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Edison International:

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

0.046 = US$3.1b ÷ (US$77b – US$11b) (Based on the trailing twelve months to September 2022).

Thus, Edison International has an ROCE of 4.6%. Even though it’s in line with the industry average of 4.6%, it’s still a low return by itself.

Our analysis indicates that EIX is potentially undervalued!

NYSE:EIX Return on Capital Employed December 7th 2022

Above you can see how the current ROCE for Edison International 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?

In terms of Edison International’s historical ROCE trend, it doesn’t exactly demand attention. The company has consistently earned 4.6% for the last five years, and the capital employed within the business has risen 37% in that time. 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 Conclusion…

In summary, Edison International has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 18% 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.

Edison International does have some risks, we noticed 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

While Edison International may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

What are the risks and opportunities for Edison International?

Edison International, through its subsidiaries, generates and distributes electric power.

View Full Analysis


  • Trading at 30.1% below our estimate of its fair value

  • Earnings are forecast to grow 15.72% per year


  • Interest payments are not well covered by earnings

  • Large one-off items impacting financial results

View all Risks and Rewards

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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