Returns At Axalta Coating Systems (NYSE:AXTA) Appear To Be Weighed Down

Stock Analysis

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Axalta Coating Systems (NYSE:AXTA), it didn't seem to tick all of these boxes.

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 Axalta Coating Systems:

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

0.086 = US$494m ÷ (US$7.0b - US$1.3b) (Based on the trailing twelve months to March 2023).

Thus, Axalta Coating Systems has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 11%.

View our latest analysis for Axalta Coating Systems

In the above chart we have measured Axalta Coating Systems' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Axalta Coating Systems.

Things have been pretty stable at Axalta Coating Systems, 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Axalta Coating Systems to be a multi-bagger going forward.

In a nutshell, Axalta Coating Systems has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 5.3% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Axalta Coating Systems (of which 1 is potentially serious!) that you should know about.

While Axalta Coating Systems isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Find out whether Axalta Coating Systems is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Axalta Coating Systems Ltd., through its subsidiaries, manufactures, markets, and distributes high-performance coatings systems in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.

Solid track record with reasonable growth potential.