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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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Atlantic Navigation Holdings (Singapore) (Catalist:5UL) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Atlantic Navigation Holdings (Singapore), this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$15m ÷ (US$153m - US$35m) (Based on the trailing twelve months to December 2022).
Thus, Atlantic Navigation Holdings (Singapore) has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 6.0% it's much better.
See our latest analysis for Atlantic Navigation Holdings (Singapore)
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Atlantic Navigation Holdings (Singapore), check out these free graphs here.
What The Trend Of ROCE Can Tell Us
Atlantic Navigation Holdings (Singapore) has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 13% on its capital. While returns have increased, the amount of capital employed by Atlantic Navigation Holdings (Singapore) has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Key Takeaway
To bring it all together, Atlantic Navigation Holdings (Singapore) has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.