Here's What To Make Of Atmos Energy's (NYSE:ATO) Decelerating Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Having said that, from a first glance at Atmos Energy (NYSE:ATO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Atmos Energy is:

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

0.058 = US$1.5b ÷ (US$27b - US$1.2b) (Based on the trailing twelve months to March 2025).

Therefore, Atmos Energy has an ROCE of 5.8%. On its own, that's a low figure but it's around the 6.9% average generated by the Gas Utilities industry.

See our latest analysis for Atmos Energy

In the above chart we have measured Atmos Energy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Atmos Energy .

How Are Returns Trending?

The returns on capital haven't changed much for Atmos Energy in recent years. The company has consistently earned 5.8% for the last five years, and the capital employed within the business has risen 87% 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.

The Key Takeaway

As we've seen above, Atmos Energy's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 70% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Atmos Energy, we've discovered 2 warning signs that you should be aware of.

While Atmos Energy 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.