Did you know there are some financial metrics that can provide clues of a potential 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating American Airlines Group (NASDAQ:AAL), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for American Airlines Group, this is the formula:

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

0.074 = US$2.9b ÷ (US$64b - US$25b) (Based on the trailing twelve months to June 2024).

So, American Airlines Group has an ROCE of 7.4%. On its own, that's a low figure but it's around the 8.4% average generated by the Airlines industry.

See our latest analysis for American Airlines Group

In the above chart we have measured American Airlines Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for American Airlines Group .

What Does the ROCE Trend For American Airlines Group Tell Us?

Over the past five years, American Airlines Group's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect American Airlines Group to be a multi-bagger going forward.

The Bottom Line On American Airlines Group's ROCE

We can conclude that in regards to American Airlines Group's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 60% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know about the risks facing American Airlines Group, we've discovered 2 warning signs that you should be aware of.