Yahoo Finance ATS Automation Tooling Systems (TSE:ATA) Has More To Do To Multiply In Value Going Forward
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating ATS Automation Tooling Systems (TSE:ATA), we don't think it's current trends fit the mold of a multi-bagger.
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. To calculate this metric for ATS Automation Tooling Systems, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.093 = CA$157m ÷ (CA$2.6b - CA$881m) (Based on the trailing twelve months to June 2021).
Therefore, ATS Automation Tooling Systems has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Machinery industry average of 5.9%.
Check out our latest analysis for ATS Automation Tooling Systems
In the above chart we have measured ATS Automation Tooling Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering ATS Automation Tooling Systems here for free.
How Are Returns Trending?
The returns on capital haven't changed much for ATS Automation Tooling Systems in recent years. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 62% 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.
The Key Takeaway
As we've seen above, ATS Automation Tooling Systems' returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 261% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
One more thing, we've spotted 1 warning sign facing ATS Automation Tooling Systems that you might find interesting.
While ATS Automation Tooling Systems isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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.
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