Returns Are Gaining Momentum At Integral Ad Science Holding (NASDAQ:IAS)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Integral Ad Science Holding (NASDAQ:IAS) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Integral Ad Science Holding:

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

0.014 = US$15m ÷ (US$1.1b - US$49m) (Based on the trailing twelve months to June 2022).

So, Integral Ad Science Holding has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Media industry average of 7.5%.

See our latest analysis for Integral Ad Science Holding

In the above chart we have measured Integral Ad Science Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Integral Ad Science Holding is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses two years ago, but now it's earning 1.4% which is a sight for sore eyes. Not only that, but the company is utilizing 32% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Integral Ad Science Holding has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 67% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Integral Ad Science Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IAS is currently trading for a fair price.

While Integral Ad Science Holding 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.