The Return Trends At Rumble Resources (ASX:RTR) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Rumble Resources (ASX:RTR) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Rumble Resources:

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

0.00065 = AU$11k ÷ (AU$19m - AU$999k) (Based on the trailing twelve months to December 2020).

Thus, Rumble Resources has an ROCE of 0.06%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.5%.

Check out our latest analysis for Rumble Resources

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rumble Resources' ROCE against it's prior returns. If you'd like to look at how Rumble Resources has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Rumble Resources Tell Us?

The fact that Rumble Resources is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.06% on its capital. In addition to that, Rumble Resources is employing 237% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line On Rumble Resources' ROCE

Long story short, we're delighted to see that Rumble Resources' reinvestment activities have paid off and the company is now profitable. And a remarkable 4,536% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Rumble Resources, we've spotted 4 warning signs, and 2 of them shouldn't be ignored.

While Rumble Resources isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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