ATON Green Storage (BIT:ATON) Could Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Speaking of which, we noticed some great changes in ATON Green Storage's (BIT:ATON) returns on capital, so let's have a 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 ATON Green Storage, this is the formula:

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

0.28 = €10m ÷ (€48m - €12m) (Based on the trailing twelve months to December 2022).

Therefore, ATON Green Storage has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Electrical industry average of 15%.

Check out our latest analysis for ATON Green Storage

Above you can see how the current ROCE for ATON Green Storage compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ATON Green Storage here for free.

How Are Returns Trending?

The fact that ATON Green Storage is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 28% on its capital. In addition to that, ATON Green Storage is employing 679% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, ATON Green Storage has decreased current liabilities to 26% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that ATON Green Storage has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On ATON Green Storage's ROCE

In summary, it's great to see that ATON Green Storage has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 22% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 4 warning signs with ATON Green Storage (at least 2 which make us uncomfortable) , and understanding them would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.