AcuityAds Holdings (TSE:AT) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at AcuityAds Holdings (TSE:AT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for AcuityAds Holdings, this is the formula:

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

0.039 = CA$4.5m ÷ (CA$141m - CA$25m) (Based on the trailing twelve months to March 2022).

Therefore, AcuityAds Holdings has an ROCE of 3.9%. On its own, that's a low figure but it's around the 4.6% average generated by the Interactive Media and Services industry.

View our latest analysis for AcuityAds Holdings

In the above chart we have measured AcuityAds Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AcuityAds Holdings.

What Does the ROCE Trend For AcuityAds Holdings Tell Us?

In terms of AcuityAds Holdings' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 3.9% for the last five years, and the capital employed within the business has risen 554% 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 18% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On AcuityAds Holdings' ROCE

Long story short, while AcuityAds Holdings has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 26% in the last five years. Therefore based on the analysis done in this article, we don't think AcuityAds Holdings has the makings of a multi-bagger.

On a separate note, we've found 2 warning signs for AcuityAds Holdings you'll probably want to know about.

While AcuityAds Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.