Stock Analysis

Geodrill (TSE:GEO) Is Very Good At Capital Allocation

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TSX:GEO
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. And in light of that, the trends we're seeing at Geodrill's (TSE:GEO) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Geodrill is:

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

0.22 = US$24m ÷ (US$141m - US$31m) (Based on the trailing twelve months to June 2022).

Thus, Geodrill has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 4.0% earned by companies in a similar industry.

See our latest analysis for Geodrill

roce
TSX:GEO Return on Capital Employed September 30th 2022

In the above chart we have measured Geodrill's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Geodrill's ROCE Trend?

Investors would be pleased with what's happening at Geodrill. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The amount of capital employed has increased too, by 83%. So we're very much inspired by what we're seeing at Geodrill thanks to its ability to profitably reinvest capital.

The Bottom Line On Geodrill's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Geodrill has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 1.7% to shareholders. So with that in mind, we think the stock deserves further research.

If you'd like to know about the risks facing Geodrill, we've discovered 3 warning signs that 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.

Valuation is complex, but we're helping make it simple.

Find out whether Geodrill is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About TSX:GEO

Geodrill

Geodrill Limited, together with its subsidiaries, provides mineral exploration drilling services to mining companies in West Africa, Zambia, and Peru.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth1
Past Performance3
Financial Health5
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Undervalued with excellent balance sheet.