Here's What's Concerning About Air Transport Services Group's (NASDAQ:ATSG) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. In light of that, when we looked at Air Transport Services Group (NASDAQ:ATSG) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Air Transport Services Group:

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

0.033 = US$114m ÷ (US$3.9b - US$429m) (Based on the trailing twelve months to June 2024).

Therefore, Air Transport Services Group has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 12%.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Air Transport Services Group .

The Trend Of ROCE

On the surface, the trend of ROCE at Air Transport Services Group doesn't inspire confidence. Around five years ago the returns on capital were 6.1%, but since then they've fallen to 3.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Air Transport Services Group's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. 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'd like to know more about Air Transport Services Group, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Air Transport Services Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.