There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Edison International (NYSE:EIX), we don't think it's current trends fit the mold of a multi-bagger.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Edison International, this is the formula:

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

0.048 = US$3.8b ÷ (US$88b - US$7.8b) (Based on the trailing twelve months to March 2025).

Thus, Edison International has an ROCE of 4.8%.  On its own that's a low return on capital but it's in line with the industry's average returns of 5.1%.

View our latest analysis for Edison International NYSE:EIX Return on Capital Employed May 19th 2025

In the above chart we have measured Edison International'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 freeanalyst report for Edison International .

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Edison International. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 4.8%. 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.

The Key Takeaway

In conclusion, Edison International has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 30% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Edison International does have some risks, we noticed  4 warning signs  (and 2 which are potentially serious)  we think you should know about.

Story Continues

If you want to search for solid companies with great earnings, check out this freelist of companies with good balance sheets and impressive returns on equity.

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.

View Comments