5N Plus (TSE:VNP) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, 5N Plus (TSE:VNP) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for 5N Plus, this is the formula:

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

0.11 = US$36m ÷ (US$377m - US$60m) (Based on the trailing twelve months to December 2024).

Therefore, 5N Plus has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 9.3% it's much better.

See our latest analysis for 5N Plus

In the above chart we have measured 5N Plus' 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 5N Plus for free.

What Can We Tell From 5N Plus' ROCE Trend?

We like the trends that we're seeing from 5N Plus. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 64% more capital is being employed now too. So we're very much inspired by what we're seeing at 5N Plus thanks to its ability to profitably reinvest capital.

Our Take On 5N Plus' 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 5N Plus has. And a remarkable 266% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if 5N Plus can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with 5N Plus (including 1 which shouldn't be ignored) .

While 5N Plus 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.