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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at AstroNova (NASDAQ:ALOT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AstroNova:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = US$11m ÷ (US$169m - US$45m) (Based on the trailing twelve months to August 2024).
So, AstroNova has an ROCE of 8.7%. Even though it's in line with the industry average of 8.7%, it's still a low return by itself.
See our latest analysis for AstroNova
Historical performance is a great place to start when researching a stock so above you can see the gauge for AstroNova's ROCE against it's prior returns. If you'd like to look at how AstroNova has performed in the past in other metrics, you can view this free graph of AstroNova's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
The returns on capital haven't changed much for AstroNova in recent years. The company has consistently earned 8.7% for the last five years, and the capital employed within the business has risen 31% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From AstroNova's ROCE
As we've seen above, AstroNova's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 10% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
On a separate note, we've found 1 warning sign for AstroNova you'll probably want to know about.
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.