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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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Hecla Mining (NYSE:HL) looks quite promising in regards to its trends of return on capital.
What Is 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. To calculate this metric for Hecla Mining, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = US$125m ÷ (US$3.0b - US$198m) (Based on the trailing twelve months to December 2024).
So, Hecla Mining has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 10%.
Check out our latest analysis for Hecla Mining
Above you can see how the current ROCE for Hecla Mining 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 Hecla Mining for free.
What The Trend Of ROCE Can Tell Us
We're delighted to see that Hecla Mining is reaping rewards from its investments and has now broken into profitability. The company now earns 4.5% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Hecla Mining has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
The Key Takeaway
To bring it all together, Hecla Mining has done well to increase the returns it's generating from its capital employed. And a remarkable 229% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Hecla Mining you'll probably want to know about.