Slowing Rates Of Return At ANA Holdings (TSE:9202) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at ANA Holdings (TSE:9202) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 ANA Holdings:

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

0.074 = JP¥187b ÷ (JP¥3.5t - JP¥968b) (Based on the trailing twelve months to September 2024).

Therefore, ANA Holdings has an ROCE of 7.4%. In absolute terms, that's a low return but it's around the Airlines industry average of 8.3%.

Check out our latest analysis for ANA Holdings

Above you can see how the current ROCE for ANA Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ANA Holdings .

What Can We Tell From ANA Holdings' ROCE Trend?

There are better returns on capital out there than what we're seeing at ANA Holdings. The company has consistently earned 7.4% for the last five years, and the capital employed within the business has risen 23% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In conclusion, ANA Holdings has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

While ANA Holdings doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 9202 on our platform.

While ANA Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.