Atlas Technologies (TSE:9563) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Atlas Technologies (TSE:9563) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Atlas Technologies:

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

0.052 = JP¥130m ÷ (JP¥2.8b - JP¥261m) (Based on the trailing twelve months to December 2023).

So, Atlas Technologies has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 16%.

Check out our latest analysis for Atlas Technologies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Atlas Technologies' ROCE against it's prior returns. If you're interested in investigating Atlas Technologies' past further, check out this free graph covering Atlas Technologies' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Atlas Technologies, with its capital employed and returns on that capital staying somewhat the same for the last . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Atlas Technologies to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Atlas Technologies' returns on capital employed and the trends, there isn't much change to report on. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 72% in the last year. Therefore based on the analysis done in this article, we don't think Atlas Technologies has the makings of a multi-bagger.

One more thing: We've identified 5 warning signs with Atlas Technologies (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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

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.

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