AtomixLtd (TYO:4625) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So on that note, AtomixLtd (TYO:4625) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AtomixLtd:

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

0.053 = JP¥570m ÷ (JP¥15b - JP¥3.7b) (Based on the trailing twelve months to December 2020).

Thus, AtomixLtd has an ROCE of 5.3%. On its own, that's a low figure but it's around the 6.4% average generated by the Chemicals industry.

Check out our latest analysis for AtomixLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating AtomixLtd's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

AtomixLtd has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 88% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

As discussed above, AtomixLtd appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 52% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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.

Like most companies, AtomixLtd does come with some risks, and we've found 1 warning sign that you should be aware of.

While AtomixLtd 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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