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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Alphamin Resources (CVE:AFM) looks great, so lets see what the trend can tell us.
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 Alphamin Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.39 = US$177m ÷ (US$590m - US$140m) (Based on the trailing twelve months to September 2024).
Therefore, Alphamin Resources has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 1.4%.
Check out our latest analysis for Alphamin Resources
Above you can see how the current ROCE for Alphamin Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Alphamin Resources for free.
What The Trend Of ROCE Can Tell Us
The fact that Alphamin Resources is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 39% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Alphamin Resources is utilizing 88% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Key Takeaway
Long story short, we're delighted to see that Alphamin Resources' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 773% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Alphamin Resources can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Alphamin Resources that we think you should be aware of.