Air Transport Services Group (NASDAQ:ATSG) Hasn't Managed To Accelerate Its Returns
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Air Transport Services Group (NASDAQ:ATSG) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Air Transport Services Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = US$163m ÷ (US$3.9b - US$400m) (Based on the trailing twelve months to December 2023).
So, Air Transport Services Group has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 12%.
Check out our latest analysis for Air Transport Services Group
Above you can see how the current ROCE for Air Transport Services Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Air Transport Services Group .
What The Trend Of ROCE Can Tell Us
The returns on capital haven't changed much for Air Transport Services Group in recent years. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 4.7%. 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, Air Transport Services Group's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you'd like to know more about Air Transport Services Group, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.
While Air Transport Services Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
