[ad_1]
If you are looking for a multi-bagger, there are a few things to look out for. Among other things, we’ll want to see two things; first of all, growth come back on capital employed (ROCE) and on the other hand, an expansion of the company amount capital employed. Simply put, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. So on that note, Atkore International Group (NYSE: ATKR) looks pretty promising when it comes to its return on capital trends.
Understanding Return on Capital Employed (ROCE)
If you’ve never worked with ROCE before, it measures the “ return ” (profit before tax) that a business generates from the capital employed in its business. The formula for this calculation on Atkore International Group is:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.19 = $ 239 million ÷ ($ 1.6 billion – $ 276 million) (Based on the last twelve months up to September 2020).
Therefore, Atkore International Group has a ROCE of 19%. This in itself is standard efficiency, but it is much better than the 8.3% generated by the electrical industry.
View our latest analysis for Atkore International Group
Above you can see how Atkore International Group’s current ROCE compares to its past returns on capital, but you can’t say more about the past. If you want, you can view analyst forecasts covering Atkore International Group here for free.
What are the return trends?
Atkore International Group is showing positive trends. Data shows that returns on capital have increased dramatically over the past five years to reach 19%. The amount of capital employed also increased by 42%. We are therefore very inspired by what we see at Atkore International Group thanks to its ability to profitably reinvest capital.
What we can learn from Atkore International Group’s ROCE
To sum up, Atkore International Group has proven that it can reinvest in the business and generate higher returns on capital employed, which is great. And investors seem to expect more of that in the future, as the stock has rewarded shareholders with a 100% return over the past three years. Therefore, we believe it would be worth checking out if these trends will continue.
Like most businesses, Atkore International Group carries certain risks, and we have found 3 warning signs of which you should be aware.
Although Atkore International Group does not achieve the highest return, check out this free list of companies that achieve high returns on their equity with strong balance sheets.
Promoted
If you decide to trade Atkore International Group, use the cheapest platform * ranked # 1 overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, currencies, bonds and funds in 135 markets, all from one integrated account.
This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020
Do you have comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
Source link
