Capital Allocation Trends At As Commercial Industrial Company of Computers and Toys (ATH:ASCO) Aren't Ideal

By
Simply Wall St
Published
May 10, 2021
ATSE:ASCO

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. 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 As Commercial Industrial Company of Computers and Toys (ATH:ASCO), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 As Commercial Industrial Company of Computers and Toys:

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

0.079 = €2.6m ÷ (€36m - €4.3m) (Based on the trailing twelve months to December 2020).

So, As Commercial Industrial Company of Computers and Toys has an ROCE of 7.9%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 18%.

Check out our latest analysis for As Commercial Industrial Company of Computers and Toys

roce
ATSE:ASCO Return on Capital Employed May 11th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for As Commercial Industrial Company of Computers and Toys' ROCE against it's prior returns. If you'd like to look at how As Commercial Industrial Company of Computers and Toys has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at As Commercial Industrial Company of Computers and Toys, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.9% from 11% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line

We're a bit apprehensive about As Commercial Industrial Company of Computers and Toys because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Yet despite these poor fundamentals, the stock has gained a huge 287% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

As Commercial Industrial Company of Computers and Toys does have some risks though, and we've spotted 2 warning signs for As Commercial Industrial Company of Computers and Toys that you might be interested in.

While As Commercial Industrial Company of Computers and Toys isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Promoted
If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account.


This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.


Simply Wall St character - Warren

Simply Wall St

Simply Wall St is a financial technology startup focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of equity analysts with a public, market-beating track record.