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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Inter-Rock Minerals (CVE:IRO) looks quite promising in regards to its trends of return on capital.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Inter-Rock Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$3.4m ÷ (US$27m - US$8.6m) (Based on the trailing twelve months to September 2024).
So, Inter-Rock Minerals has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Food industry.
View our latest analysis for Inter-Rock Minerals
Historical performance is a great place to start when researching a stock so above you can see the gauge for Inter-Rock Minerals' ROCE against it's prior returns. If you'd like to look at how Inter-Rock Minerals has performed in the past in other metrics, you can view this free graph of Inter-Rock Minerals' past earnings, revenue and cash flow.
So How Is Inter-Rock Minerals' ROCE Trending?
We like the trends that we're seeing from Inter-Rock Minerals. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 43%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Our Take On Inter-Rock Minerals' ROCE
All in all, it's terrific to see that Inter-Rock Minerals is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 309% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
One more thing: We've identified 3 warning signs with Inter-Rock Minerals (at least 2 which are a bit concerning) , and understanding them would certainly be useful.