Stock Analysis

Shareholders Would Enjoy A Repeat Of Atlas Pearls' (ASX:ATP) Recent Growth In Returns

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ASX:ATP
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Atlas Pearls (ASX:ATP) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Atlas Pearls:

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

0.35 = AU$8.5m ÷ (AU$31m - AU$7.3m) (Based on the trailing twelve months to December 2021).

Therefore, Atlas Pearls has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Atlas Pearls

roce
ASX:ATP Return on Capital Employed February 27th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Atlas Pearls' ROCE against it's prior returns. If you're interested in investigating Atlas Pearls' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Atlas Pearls' ROCE Trend?

Atlas Pearls' ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 439% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Atlas Pearls' ROCE

To bring it all together, Atlas Pearls has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 56% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Atlas Pearls does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Atlas Pearls is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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