The Return Trends At Integral Ad Science Holding (NASDAQ:IAS) Look Promising

There are a few key trends to look for if we want to identify the next 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. With that in mind, we've noticed some promising trends at Integral Ad Science Holding (NASDAQ:IAS) so let's look a bit deeper.

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 Integral Ad Science Holding, this is the formula:

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

0.022 = US$24m ÷ (US$1.1b - US$51m) (Based on the trailing twelve months to September 2022).

So, Integral Ad Science Holding has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.5%.

Our analysis indicates that IAS is potentially undervalued!

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 to see what analysts are forecasting going forward, you should check out our free report for Integral Ad Science Holding.

What Does the ROCE Trend For Integral Ad Science Holding Tell Us?

The fact that Integral Ad Science Holding is now generating some pre-tax profits from its prior investments is very encouraging. About two years ago the company was generating losses but things have turned around because it's now earning 2.2% on its capital. 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. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

To the delight of most shareholders, Integral Ad Science Holding has now broken into profitability. Given the stock has declined 57% 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.

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.