In This Article:
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Antero Midstream (NYSE:AM) so let's look a bit deeper.
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. The formula for this calculation on Antero Midstream is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$638m ÷ (US$5.8b - US$92m) (Based on the trailing twelve months to September 2024).
Therefore, Antero Midstream has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Oil and Gas industry average of 12%.
See our latest analysis for Antero Midstream
In the above chart we have measured Antero Midstream'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 Antero Midstream .
What Can We Tell From Antero Midstream's ROCE Trend?
Antero Midstream is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 176% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Key Takeaway
To bring it all together, Antero Midstream has done well to increase the returns it's generating from its capital employed. And a remarkable 455% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Antero Midstream can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing Antero Midstream, we've discovered 2 warning signs that you should be aware of.