U.S. markets closed
  • S&P Futures

    3,357.00
    +5.00 (+0.15%)
     
  • Dow Futures

    27,747.00
    +83.00 (+0.30%)
     
  • Nasdaq Futures

    11,416.75
    +9.50 (+0.08%)
     
  • Russell 2000 Futures

    1,508.70
    +4.30 (+0.29%)
     
  • Crude Oil

    40.06
    -0.16 (-0.40%)
     
  • Gold

    1,890.80
    -4.70 (-0.25%)
     
  • Silver

    23.36
    -0.13 (-0.55%)
     
  • EUR/USD

    1.1729
    +0.0003 (+0.02%)
     
  • 10-Yr Bond

    0.6770
    +0.0320 (+4.96%)
     
  • Vix

    26.37
    +0.10 (+0.38%)
     
  • GBP/USD

    1.2929
    +0.0008 (+0.06%)
     
  • USD/JPY

    105.5220
    +0.0920 (+0.09%)
     
  • BTC-USD

    10,809.83
    +13.79 (+0.13%)
     
  • CMC Crypto 200

    223.12
    +1.73 (+0.78%)
     
  • FTSE 100

    5,866.10
    -31.40 (-0.53%)
     
  • Nikkei 225

    23,184.93
    -0.19 (-0.00%)
     

Will Autohome (NYSE:ATHM) Multiply In Value Going Forward?

Simply Wall St

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Autohome's (NYSE:ATHM) ROCE trend, we were pretty happy with what we saw.

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 Autohome is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.20 = CN¥3.2b ÷ (CN¥20b - CN¥3.5b) (Based on the trailing twelve months to June 2020).

Therefore, Autohome has an ROCE of 20%. In absolute terms, that's a satisfactory return, but compared to the Interactive Media and Services industry average of 6.7% it's much better.

View our latest analysis for Autohome

roce
roce

Above you can see how the current ROCE for Autohome compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Autohome.

What Can We Tell From Autohome's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 239% more capital into its operations. Since 20% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Autohome's ROCE

To sum it up, Autohome has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 229% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

While Autohome doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Autohome may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.