Yahoo Finance Slowing Rates Of Return At Artesian Resources (NASDAQ:ARTN.A) Leave Little Room For Excitement
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 Artesian Resources (NASDAQ:ARTN.A), we don't think it's current trends fit the mold of a multi-bagger.
What Is 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. Analysts use this formula to calculate it for Artesian Resources:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = US$30m ÷ (US$775m - US$22m) (Based on the trailing twelve months to March 2024).
So, Artesian Resources has an ROCE of 4.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.3%.
Check out our latest analysis for Artesian Resources
Above you can see how the current ROCE for Artesian Resources 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 Artesian Resources for free.
How Are Returns Trending?
In terms of Artesian Resources' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.0% for the last five years, and the capital employed within the business has risen 53% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Key Takeaway
Long story short, while Artesian Resources has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 14% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
On a final note, we found 2 warning signs for Artesian Resources (1 is concerning) you should be aware of.
While Artesian Resources may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
