AstroNova (NASDAQ:ALOT) Hasn't Managed To Accelerate Its Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AstroNova:

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

0.11 = US$11m ÷ (US$133m - US$30m) (Based on the trailing twelve months to January 2024).

Therefore, AstroNova has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Tech industry.

Check out our latest analysis for AstroNova

Historical performance is a great place to start when researching a stock so above you can see the gauge for AstroNova's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of AstroNova.

What Can We Tell From AstroNova's ROCE Trend?

Things have been pretty stable at AstroNova, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at AstroNova in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In summary, AstroNova isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 29% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think AstroNova has the makings of a multi-bagger.

AstroNova does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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 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.