There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Pamt (NASDAQ:PAMT) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Pamt, this is the formula:

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

0.00022 = US$140k ÷ (US$757m - US$116m) (Based on the trailing twelve months to September 2024).

So, Pamt has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.5%.

Check out our latest analysis for Pamt

In the above chart we have measured Pamt'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 Pamt for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Pamt, we didn't gain much confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 0.02%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line

From the above analysis, we find it rather worrisome that returns on capital and sales for Pamt have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 9.9% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Pamt, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Pamt 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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