Yahoo Finance Return Trends At Alaska Air Group (NYSE:ALK) Aren't Appealing
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Alaska Air Group (NYSE:ALK) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on Alaska Air Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = US$780m ÷ (US$15b - US$4.8b) (Based on the trailing twelve months to March 2024).
Thus, Alaska Air Group has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Airlines industry average of 8.9%.
See our latest analysis for Alaska Air Group
Above you can see how the current ROCE for Alaska Air Group 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 Alaska Air Group for free.
What Does the ROCE Trend For Alaska Air Group Tell Us?
Over the past five years, Alaska Air Group's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Alaska Air Group to be a multi-bagger going forward.
In Conclusion...
We can conclude that in regards to Alaska Air Group's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 28% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.
Like most companies, Alaska Air Group does come with some risks, and we've found 1 warning sign 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.
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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.
