Umicore (EBR:UMI) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 Umicore (EBR:UMI) and its trend of ROCE, we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Umicore is:

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

0.16 = €913m ÷ (€9.0b - €3.5b) (Based on the trailing twelve months to December 2021).

Thus, Umicore has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Chemicals industry.

View our latest analysis for Umicore

Above you can see how the current ROCE for Umicore compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Umicore. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 138%. So we're very much inspired by what we're seeing at Umicore thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Umicore is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 7.6% 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 with that in mind, we think the stock deserves further research.

If you'd like to know more about Umicore, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

While Umicore 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.