Returns On Capital At AT & S Austria Technologie & Systemtechnik (VIE:ATS) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. However, after investigating AT & S Austria Technologie & Systemtechnik (VIE:ATS), 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. Analysts use this formula to calculate it for AT & S Austria Technologie & Systemtechnik:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.0035 = €13m ÷ (€4.6b - €1.0b) (Based on the trailing twelve months to June 2024).

So, AT & S Austria Technologie & Systemtechnik has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 12%.

Check out our latest analysis for AT & S Austria Technologie & Systemtechnik

In the above chart we have measured AT & S Austria Technologie & Systemtechnik'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 AT & S Austria Technologie & Systemtechnik .

How Are Returns Trending?

When we looked at the ROCE trend at AT & S Austria Technologie & Systemtechnik, we didn't gain much confidence. Around five years ago the returns on capital were 5.8%, but since then they've fallen to 0.4%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by AT & S Austria Technologie & Systemtechnik's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 30% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 2 warning signs with AT & S Austria Technologie & Systemtechnik and understanding them should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.