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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Integral Ad Science Holding (NASDAQ:IAS) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Integral Ad Science Holding is:

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

0.029 = US$32m ÷ (US$1.2b - US$68m) (Based on the trailing twelve months to December 2022).

Therefore, Integral Ad Science Holding has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Media industry average of 9.4%.

Check out 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'd like, you can check out the forecasts from the analysts covering Integral Ad Science Holding here for free.

What Can We Tell From Integral Ad Science Holding's ROCE Trend?

We're delighted to see that Integral Ad Science Holding is reaping rewards from its investments and is now generating some pre-tax profits. About three years ago the company was generating losses but things have turned around because it's now earning 2.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Integral Ad Science Holding is utilizing 30% more capital than it was three years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Integral Ad Science Holding's ROCE

To the delight of most shareholders, Integral Ad Science Holding has now broken into profitability. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Integral Ad Science Holding you'll probably want to know about.

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.