Returns On Capital Are Showing Encouraging Signs At AutoStore Holdings (OB:AUTO)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in AutoStore Holdings' (OB:AUTO) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for AutoStore Holdings, this is the formula:

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

0.11 = US$215m ÷ (US$2.1b - US$227m) (Based on the trailing twelve months to June 2024).

Therefore, AutoStore Holdings has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Machinery industry.

View our latest analysis for AutoStore Holdings

In the above chart we have measured AutoStore Holdings' 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 AutoStore Holdings for free.

So How Is AutoStore Holdings' ROCE Trending?

AutoStore Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last four years, ROCE has grown 391% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To bring it all together, AutoStore Holdings has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 27% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

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

While AutoStore Holdings 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.