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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So on that note, Atlantic Navigation Holdings (Singapore) (Catalist:5UL) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 Atlantic Navigation Holdings (Singapore) is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.098 = US$11m ÷ (US$154m - US$38m) (Based on the trailing twelve months to September 2022).
Thus, Atlantic Navigation Holdings (Singapore) has an ROCE of 9.8%. On its own that's a low return, but compared to the average of 3.4% generated by the Energy Services industry, it's much better.
See our latest analysis for Atlantic Navigation Holdings (Singapore)
Historical performance is a great place to start when researching a stock so above you can see the gauge for Atlantic Navigation Holdings (Singapore)'s ROCE against it's prior returns. If you'd like to look at how Atlantic Navigation Holdings (Singapore) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Shareholders will be relieved that Atlantic Navigation Holdings (Singapore) has broken into profitability. The company now earns 9.8% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Atlantic Navigation Holdings (Singapore) has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
Our Take On Atlantic Navigation Holdings (Singapore)'s ROCE
In summary, we're delighted to see that Atlantic Navigation Holdings (Singapore) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 52% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
One final note, you should learn about the 3 warning signs we've spotted with Atlantic Navigation Holdings (Singapore) (including 2 which are significant) .
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
