The Return Trends At AutoStore Holdings (OB:AUTO) Look Promising

Did you know there are some financial metrics that can provide clues of a potential 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. 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.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on AutoStore Holdings is:

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

0.12 = US$212m ÷ (US$2.0b - US$244m) (Based on the trailing twelve months to September 2023).

Thus, AutoStore Holdings has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.3% it's much better.

View our latest analysis for AutoStore Holdings

Above you can see how the current ROCE for AutoStore Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AutoStore Holdings.

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 three years, ROCE has grown 495% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To sum it up, AutoStore Holdings is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 29% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 1 warning sign for AutoStore Holdings that we think 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.