If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Atrato Onsite Energy (LON:ROOF) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Atrato Onsite Energy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = UK£2.8m ÷ (UK£141m - UK£419k) (Based on the trailing twelve months to March 2023).
So, Atrato Onsite Energy has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 14%.
View our latest analysis for Atrato Onsite Energy
In the above chart we have measured Atrato Onsite Energy's 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 Atrato Onsite Energy here for free.
What Does the ROCE Trend For Atrato Onsite Energy Tell Us?
There hasn't been much to report for Atrato Onsite Energy's returns and its level of capital employed because both metrics have been steady for the past . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Atrato Onsite Energy in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Atrato Onsite Energy has been paying out 71% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.
The Key Takeaway
We can conclude that in regards to Atrato Onsite Energy's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 19% over the last year, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.