If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Atlas Air Worldwide Holdings (NASDAQ:AAWW) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Atlas Air Worldwide Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$556m ÷ (US$6.0b - US$1.1b) (Based on the trailing twelve months to March 2021).
So, Atlas Air Worldwide Holdings has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.
In the above chart we have measured Atlas Air Worldwide Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Atlas Air Worldwide Holdings here for free.
What Can We Tell From Atlas Air Worldwide Holdings' ROCE Trend?
We like the trends that we're seeing from Atlas Air Worldwide Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 38%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line On Atlas Air Worldwide Holdings' ROCE
All in all, it's terrific to see that Atlas Air Worldwide Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 67% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One more thing: We've identified 5 warning signs with Atlas Air Worldwide Holdings (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.
While Atlas Air Worldwide Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. 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.
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