Shareholders Would Enjoy A Repeat Of Atkore's (NYSE:ATKR) Recent Growth In Returns
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Atkore (NYSE:ATKR) we really liked what we saw.
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 Atkore is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.44 = US$1.0b ÷ (US$2.8b - US$521m) (Based on the trailing twelve months to June 2023).
Thus, Atkore has an ROCE of 44%. In absolute terms that's a great return and it's even better than the Electrical industry average of 12%.
See our latest analysis for Atkore
In the above chart we have measured Atkore's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
The trends we've noticed at Atkore are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 44%. Basically the business is earning more per dollar of capital invested and in addition to that, 118% more capital is being employed now too. So we're very much inspired by what we're seeing at Atkore thanks to its ability to profitably reinvest capital.
The Key Takeaway
In summary, it's great to see that Atkore can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Atkore does come with some risks, and we've found 1 warning sign that you should be aware of.
Atkore is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
