Yahoo Finance We Like Atour Lifestyle Holdings' (NASDAQ:ATAT) Returns And Here's How They're Trending
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Atour Lifestyle Holdings (NASDAQ:ATAT) looks great, so lets see what the trend can tell us.
Understanding Return On Capital Employed (ROCE)
For those that 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 Atour Lifestyle Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = CN¥924m ÷ (CN¥6.6b - CN¥2.4b) (Based on the trailing twelve months to December 2023).
So, Atour Lifestyle Holdings has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.
Check out our latest analysis for Atour Lifestyle Holdings
Above you can see how the current ROCE for Atour Lifestyle Holdings compares to its prior 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 Atour Lifestyle Holdings for free.
The Trend Of ROCE
Atour Lifestyle Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last four years to 22%. The amount of capital employed has increased too, by 333%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
To sum it up, Atour Lifestyle Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 25% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One more thing, we've spotted 1 warning sign facing Atour Lifestyle Holdings that you might find interesting.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
