The Return Trends At Ambienthesis (BIT:ATH) Look Promising

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. So on that note, Ambienthesis (BIT:ATH) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Ambienthesis, this is the formula:

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

0.054 = €4.6m ÷ (€140m - €55m) (Based on the trailing twelve months to June 2021).

Therefore, Ambienthesis has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.6%.

Check out our latest analysis for Ambienthesis

In the above chart we have measured Ambienthesis' 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 Ambienthesis here for free.

What The Trend Of ROCE Can Tell Us

The fact that Ambienthesis is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 5.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Ambienthesis is utilizing 39% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Ambienthesis has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 218% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Ambienthesis does have some risks though, and we've spotted 1 warning sign for Ambienthesis that you might be interested in.

While Ambienthesis 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.