Returns At American Airlines Group (NASDAQ:AAL) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at American Airlines Group (NASDAQ:AAL) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for American Airlines Group, this is the formula:

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

0.074 = US$2.9b ÷ (US$64b - US$25b) (Based on the trailing twelve months to June 2024).

Therefore, American Airlines Group has an ROCE of 7.4%. On its own, that's a low figure but it's around the 8.4% average generated by the Airlines industry.

See our latest analysis for American Airlines Group

In the above chart we have measured American Airlines Group'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 analyst report for American Airlines Group .

What Does the ROCE Trend For American Airlines Group Tell Us?

Things have been pretty stable at American Airlines Group, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if American Airlines Group doesn't end up being a multi-bagger in a few years time.

The Bottom Line On American Airlines Group's ROCE

We can conclude that in regards to American Airlines Group's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 2 warning signs for American Airlines Group you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.