We Like These Underlying Return On Capital Trends At Alamos Gold (TSE:AGI)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Alamos Gold (TSE:AGI) so let's look a bit deeper.

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. The formula for this calculation on Alamos Gold is:

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

0.085 = US$325m ÷ (US$4.0b - US$204m) (Based on the trailing twelve months to March 2024).

Thus, Alamos Gold has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 0.5%.

Check out our latest analysis for Alamos Gold

In the above chart we have measured Alamos Gold's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alamos Gold for free.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Alamos Gold is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Alamos Gold is utilizing 21% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Alamos Gold's ROCE

Long story short, we're delighted to see that Alamos Gold's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 162% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Alamos Gold, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.

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