What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Atlas Energy Solutions (NYSE:AESI) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Atlas Energy Solutions, this is the formula:

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

0.13 = US$226m ÷ (US$1.9b - US$190m) (Based on the trailing twelve months to March 2024).

So, Atlas Energy Solutions has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 12%.

Above you can see how the current ROCE for Atlas Energy Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Atlas Energy Solutions .

What Can We Tell From Atlas Energy Solutions' ROCE Trend?

We like the trends that we're seeing from Atlas Energy Solutions. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 270% more capital is being employed now too. So we're very much inspired by what we're seeing at Atlas Energy Solutions thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Atlas Energy Solutions has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 10% return over the last year. In light of that, we think it's worth looking further into this stock because if Atlas Energy Solutions can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 5 warning signs with Atlas Energy Solutions (at least 1 which is potentially serious) , and understanding them would certainly be useful.

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.

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