Returns on Capital at Atlas Technical Consultants (NASDAQ:ATCX) Paint a Concerning Picture
Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. However, after investigating Atlas Technical Consultants (NASDAQ:ATCX), we don’t think current trends fit the mold of a multi-bagger.
What is return on capital employed (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Atlas Technical Consultants is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.045 = $16 million ÷ ($420 million – $66 million) (Based on the last twelve months to October 2021).
Thereby, Atlas Technical Consultants has a ROCE of 4.5%. Ultimately, that’s a poor performer, and it’s below the professional services industry average of 11%.
See our latest analysis for Atlas Technical Consultants
In the chart above, we measured Atlas Technical Consultants’ past ROCE against its past performance, but the future is arguably more important. If you wish, you can view forecasts from analysts covering Atlas Technical Consultants here for free.
What does the ROCE trend tell us for Atlas Technical Consultants?
At first glance, the ROCE trend at Atlas Technical Consultants does not inspire confidence. Over the past three years, capital returns have declined to 4.5% from 6.1% three years ago. However, given that capital employed and revenue have both increased, it appears that the company is currently continuing to grow, following short-term returns. If these investments prove successful, it can bode very well for long-term stock performance.
The Key Takeaway
While returns have fallen for Atlas Technical Consultants lately, we are encouraged to see that sales are increasing and the company is reinvesting in its operations. These trends are beginning to be recognized by investors as the stock has delivered a 14% gain to shareholders who have held it over the past three years. Therefore, we recommend that you take a closer look at this stock to confirm if it has the makings of a good investment.
One last note, you should inquire about the 3 warning signs we spotted with Atlas Technical Consultants (including 1 essential).
While Atlas Tech Consultants don’t generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.