Returns At Montana Aerospace (VTX:AERO) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Montana Aerospace (VTX:AERO), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Montana Aerospace is:

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

0.037 = €53m ÷ (€1.9b - €486m) (Based on the trailing twelve months to September 2024).

Thus, Montana Aerospace has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Aerospace & Defense industry average of 11%.

Check out our latest analysis for Montana Aerospace

In the above chart we have measured Montana Aerospace's 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 Montana Aerospace for free.

So How Is Montana Aerospace's ROCE Trending?

In terms of Montana Aerospace's historical ROCE trend, it doesn't exactly demand attention. The company has employed 74% more capital in the last five years, and the returns on that capital have remained stable at 3.7%. 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.

What We Can Learn From Montana Aerospace's ROCE

As we've seen above, Montana Aerospace's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 52% over the last three years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Montana Aerospace could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for AERO on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.