To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Jinchuan Group International Resources (HKG:2362) and its trend of ROCE, we really liked what we saw.
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. To calculate this metric for Jinchuan Group International Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = US$48m ÷ (US$2.3b - US$309m) (Based on the trailing twelve months to June 2024).
Therefore, Jinchuan Group International Resources has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Jinchuan Group International Resources' past further, check out this free graph covering Jinchuan Group International Resources' past earnings, revenue and cash flow.
So How Is Jinchuan Group International Resources' ROCE Trending?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 2.4%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Jinchuan Group International Resources thanks to its ability to profitably reinvest capital.
The Key Takeaway
All in all, it's terrific to see that Jinchuan Group International Resources is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 1.2% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
Jinchuan Group International Resources does have some risks though, and we've spotted 1 warning sign for Jinchuan Group International Resources that you might be interested in.
While Jinchuan Group International Resources 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
