New Zealand markets closed
  • NZX 50

    11,065.71
    -134.33 (-1.20%)
     
  • NZD/USD

    0.5726
    -0.0005 (-0.09%)
     
  • NZD/EUR

    0.5824
    -0.0008 (-0.14%)
     
  • ALL ORDS

    6,678.70
    -81.90 (-1.21%)
     
  • ASX 200

    6,474.20
    -80.80 (-1.23%)
     
  • OIL

    82.23
    +1.00 (+1.23%)
     
  • GOLD

    1,678.20
    +9.60 (+0.58%)
     
  • NASDAQ

    11,164.78
    -329.05 (-2.86%)
     
  • FTSE

    6,929.02
    +47.43 (+0.69%)
     
  • Dow Jones

    29,225.61
    -458.13 (-1.54%)
     
  • DAX

    12,089.78
    +114.23 (+0.95%)
     
  • Hang Seng

    17,222.83
    +56.96 (+0.33%)
     
  • NIKKEI 225

    25,937.21
    -484.84 (-1.83%)
     
  • NZD/JPY

    82.5680
    -0.1790 (-0.22%)
     

AstroNova (NASDAQ:ALOT) Is Reinvesting At Lower Rates Of Return

·2-min read

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating AstroNova (NASDAQ:ALOT), we don't think it's current trends fit the mold of a multi-bagger.

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 AstroNova is:

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

0.012 = US$1.2m ÷ (US$115m - US$20m) (Based on the trailing twelve months to January 2022).

Therefore, AstroNova has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Tech industry average of 12%.

Check out our latest analysis for AstroNova

roce
roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of AstroNova, check out these free graphs here.

What Does the ROCE Trend For AstroNova Tell Us?

On the surface, the trend of ROCE at AstroNova doesn't inspire confidence. Around five years ago the returns on capital were 9.6%, but since then they've fallen to 1.2%. However it looks like AstroNova might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by AstroNova's reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. 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.

If you'd like to know about the risks facing AstroNova, we've discovered 2 warning signs that 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.