Will ANGI Homeservices (NASDAQ:ANGI) Multiply In Value Going Forward?
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after briefly looking over the numbers, we don't think ANGI Homeservices (NASDAQ:ANGI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. Analysts use this formula to calculate it for ANGI Homeservices:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.041 = US$69m ÷ (US$1.9b - US$255m) (Based on the trailing twelve months to June 2020).
So, ANGI Homeservices has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 6.7%.
View our latest analysis for ANGI Homeservices
In the above chart we have measured ANGI Homeservices' 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 ANGI Homeservices here for free.
What The Trend Of ROCE Can Tell Us
When we looked at the ROCE trend at ANGI Homeservices, we didn't gain much confidence. Over the last four years, returns on capital have decreased to 4.1% from 5.9% four years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
On a related note, ANGI Homeservices has decreased its current liabilities to 13% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
Our Take On ANGI Homeservices' ROCE
While returns have fallen for ANGI Homeservices in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 70% to shareholders over the last year. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
On a final note, we've found 3 warning signs for ANGI Homeservices that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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