Slowing Rates Of Return At Tantech Holdings (NASDAQ:TANH) Leave Little Room For Excitement
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Tantech Holdings (NASDAQ:TANH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Tantech Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = US$4.6m ÷ (US$134m - US$14m) (Based on the trailing twelve months to December 2022).
Therefore, Tantech Holdings has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 11%.
View our latest analysis for Tantech Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Tantech Holdings' ROCE against it's prior returns. If you're interested in investigating Tantech Holdings' past further, check out this free graph of past earnings, revenue and cash flow.
So How Is Tantech Holdings' ROCE Trending?
Over the past five years, Tantech Holdings' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Tantech Holdings doesn't end up being a multi-bagger in a few years time.
What We Can Learn From Tantech Holdings' ROCE
We can conclude that in regards to Tantech Holdings' returns on capital employed and the trends, there isn't much change to report on. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 99% in the last five years. 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.
On a final note, we've found 4 warning signs for Tantech Holdings that we think you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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