Flint (TSE:FLNT) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Flint (TSE:FLNT) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Flint is:

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

0.12 = CA$18m ÷ (CA$217m - CA$63m) (Based on the trailing twelve months to December 2023).

Therefore, Flint has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Energy Services industry.

See our latest analysis for Flint

Historical performance is a great place to start when researching a stock so above you can see the gauge for Flint's ROCE against it's prior returns. If you're interested in investigating Flint's past further, check out this free graph covering Flint's past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Flint 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 12% on its capital. And unsurprisingly, like most companies trying to break into the black, Flint is utilizing 229% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 29%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Flint has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Long story short, we're delighted to see that Flint's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 62% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 3 warning signs for Flint that we think you should be aware of.

While Flint 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. 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.