Be Wary Of Vistra (NYSE:VST) And Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount 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 briefly looking over the numbers, we don’t think Vistra (NYSE:VST) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.

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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. The formula for this calculation on Vistra is:

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

0.074 = US$2.2b ÷ (US$38b – US$8.4b) (Based on the trailing twelve months to September 2025).

Thus, Vistra has an ROCE of 7.4%. In absolute terms, that’s a low return, but it’s much better than the Renewable Energy industry average of 4.3%.

Check out our latest analysis for Vistra

In the above chart we have measured Vistra’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 analyst report for Vistra .

In terms of Vistra’s historical ROCE movements, the trend isn’t fantastic. Around five years ago the returns on capital were 9.8%, but since then they’ve fallen to 7.4%. However it looks like Vistra might be reinvesting for long term growth because while capital employed has increased, the company’s sales haven’t changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In summary, Vistra is reinvesting funds back into the business for growth but unfortunately it looks like sales haven’t increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 863% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn’t high.

If you want to know some of the risks facing Vistra we’ve found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.