Kinder Morgan (NYSE:KMI)’s Return Trend Is Unattractive

If you’re not sure where to start when searching for your next multi-bagger, there are a few key trends to keep an eye on. Ideally, you’ll see two trends in your business: First, it’s growing. return Return on Invested Capital (ROCE) and, secondly, amount 100% of invested capital. Essentially this means that the company has a profitable endeavor that it can continually reinvest in, which is the hallmark of a compound interest machine. Kinder Morgan (NYSE:KMI) While the return trend isn’t surprising, let’s take a closer look.

Understanding Return on Invested Capital (ROCE)

For those unfamiliar, ROCE is a metric that assesses how much pre-tax profit (as a percentage) a company earns on the capital invested in its business. Here’s the formula for Kinder Morgan:

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

0.064 = $4.2 billion ÷ ($71 billion – $4.6 billion) (Based on the trailing 12 months ending March 2024).

therefore, Kinder Morgan’s ROCE is 6.4%. All told, this is a low return, below the oil and gas industry average of 12%.

View our latest analysis for Kinder Morgan

The chart above compares Kinder Morgan’s historical ROCE with its past performance, but arguably the future is more important – if you like you can check out forecasts made by the analysts covering Kinder Morgan. free.

ROCE Trends

Over the past five years, Kinder Morgan’s ROCE and invested capital have both remained fairly flat. This indicates that the company is not reinvesting in itself and is likely past its growth stage. Therefore, unless Kinder Morgan sees a significant change in terms of ROCE and additional investment, it would be unreasonable to expect the company to grow earnings multiples. Perhaps this is why Kinder Morgan pays out 88% of its profits as dividends to shareholders. Since these mature businesses usually have stable profits and don’t have much room to reinvest them, the next best thing is to put the profits in shareholders’ pockets.

The conclusion is…

In short, Kinder Morgan has struggled over the past five years while generating the same revenue from the same capital. And with a price return to shareholders of just 29% over the past five years, it seems the company is aware of this underperformance. So, if you’re looking for a multi-bagger, you may have better luck elsewhere.

One more thing: we Three Warning Signs We have a partnership with Kinder Morgan (there are at least two), and it’s certainly helpful to understand these.

Kinder Morgan isn’t getting the best returns, but take a look at this. free A list of companies with healthy balance sheets and high return on equity.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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