Air Transport Services Group's (NASDAQ:ATSG) Returns Have Hit A Wall

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Air Transport Services Group (NASDAQ:ATSG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Air Transport Services Group is:

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

0.047 = US$163m ÷ (US$3.9b - US$400m) (Based on the trailing twelve months to December 2023).

So, Air Transport Services Group has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 9.3%.

See our latest analysis for Air Transport Services Group

Above you can see how the current ROCE for Air Transport Services Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Air Transport Services Group for free.

What Does the ROCE Trend For Air Transport Services Group Tell Us?

The returns on capital haven't changed much for Air Transport Services Group in recent years. The company has consistently earned 4.7% for the last five years, and the capital employed within the business has risen 55% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Air Transport Services Group's ROCE

In conclusion, Air Transport Services Group has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 40% in the last five years. Therefore based on the analysis done in this article, we don't think Air Transport Services Group has the makings of a multi-bagger.

If you want to know some of the risks facing Air Transport Services Group we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.