Zimplats Holdings (ASX:ZIM) Could Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Zimplats Holdings (ASX:ZIM) looks great, so lets see what the trend can tell us.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Zimplats Holdings, this is the formula:

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

0.33 = US$711m ÷ (US$2.3b - US$112m) (Based on the trailing twelve months to December 2021).

Therefore, Zimplats Holdings has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 9.0%.

View our latest analysis for Zimplats Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zimplats Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Zimplats Holdings, check out these free graphs here.

How Are Returns Trending?

Zimplats Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 33%. The amount of capital employed has increased too, by 83%. So we're very much inspired by what we're seeing at Zimplats Holdings thanks to its ability to profitably reinvest capital.

Our Take On Zimplats Holdings' ROCE

To sum it up, Zimplats Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for Zimplats Holdings that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.