We Think K92 Mining (TSE:KNT) Might Have The DNA Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of K92 Mining (TSE:KNT) we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for K92 Mining:

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

0.23 = US$47m ÷ (US$225m - US$24m) (Based on the trailing twelve months to June 2021).

So, K92 Mining has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 3.8% earned by companies in a similar industry.

View our latest analysis for K92 Mining

In the above chart we have measured K92 Mining'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 K92 Mining here for free.

What Does the ROCE Trend For K92 Mining Tell Us?

K92 Mining has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 23% on its capital. In addition to that, K92 Mining is employing 2,400% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, K92 Mining has decreased current liabilities to 10% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On K92 Mining's ROCE

In summary, it's great to see that K92 Mining has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 344% 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 K92 Mining, you might be interested to know about the 2 warning signs that our analysis has discovered.

K92 Mining is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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