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Will Adtalem Global Education (NYSE:ATGE) Multiply In Value Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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 Adtalem Global Education (NYSE:ATGE), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Adtalem Global Education:

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

0.095 = US$199m ÷ (US$2.4b - US$345m) (Based on the trailing twelve months to March 2020).

So, Adtalem Global Education has an ROCE of 9.5%. On its own that's a low return, but compared to the average of 7.7% generated by the Consumer Services industry, it's much better.

Check out our latest analysis for Adtalem Global Education

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In the above chart we have a measured Adtalem Global Education's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Adtalem Global Education here for free.

What The Trend Of ROCE Can Tell Us

In terms of Adtalem Global Education's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 12% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Adtalem Global Education's ROCE

While returns have fallen for Adtalem Global Education in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 26% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

One more thing: We've identified 2 warning signs with Adtalem Global Education (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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

This article by Simply Wall St is general in nature. 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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