If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with: returns: on capital employed (ROCE) that are increasing, in conjunction with a growing amount: of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continuously reinvesting their earnings at ever-higher rates of return. With that in mind, we’ve noticed some promising trends at: Integral Ad Science Holding (NASDAQ:IAS) so let’s look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those who aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Integral Ad Science Holding.
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.014 = US$15m ÷ (US$1.1b – US$49m) (Based on the trailing twelve months to June 2022).
Therefore, Integral Ad Science Holding has a ROCE of 1.4%. In absolute terms, that’s a low return and it also under-performs the Media industry average of 7.3%.
See our latest analysis for Integral Ad Science Holding
Above you can see how the current ROCE for Integral Ad Science Holding compares to its previous returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Integral Ad Science Holding here for: free.
What Can We Tell From Integral Ad Science Holding’s ROCE Trend?
The fact that Integral Ad Science Holding is now generating some pre-tax profits from its previous investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making two years ago but is now generating 1.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Integral Ad Science Holding is utilizing 32% more capital than it was two years ago. This can indicate that there are plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On Integral Ad Science Holding’s ROCE
To the delight of most shareholders, Integral Ad Science Holding has now broken into profitability. And since the stock has fallen 47% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
Integral Ad Science Holding does have some risks though, and we’ve spotted them 1 warning sign for Integral Ad Science Holding that you might be interested in.
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.
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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 into account 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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