If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at AdTheorent Holding Company (NASDAQ:ADTH) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for AdTheorent Holding Company:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.028 = US$5.2m ÷ (US$214m - US$28m) (Based on the trailing twelve months to December 2021).
Therefore, AdTheorent Holding Company has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Media industry average of 6.7%.
Check out our latest analysis for AdTheorent Holding Company
Above you can see how the current ROCE for AdTheorent Holding Company compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering AdTheorent Holding Company here for free.
What Does the ROCE Trend For AdTheorent Holding Company Tell Us?
On the surface, the trend of ROCE at AdTheorent Holding Company doesn't inspire confidence. Over the last two years, returns on capital have decreased to 2.8% from 15% two years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line
In summary, despite lower returns in the short term, we're encouraged to see that AdTheorent Holding Company is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 14% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.