A Look Into Wesdome Gold Mines' (TSE:WDO) Impressive Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Wesdome Gold Mines (TSE:WDO) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Wesdome Gold Mines:

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

0.21 = CA$133m ÷ (CA$685m - CA$61m) (Based on the trailing twelve months to September 2024).

Therefore, Wesdome Gold Mines has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 1.1% earned by companies in a similar industry.

View our latest analysis for Wesdome Gold Mines

In the above chart we have measured Wesdome Gold Mines' 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 analyst report for Wesdome Gold Mines .

What Can We Tell From Wesdome Gold Mines' ROCE Trend?

Wesdome Gold Mines deserves to be commended in regards to it's returns. The company has employed 166% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Wesdome Gold Mines can keep this up, we'd be very optimistic about its future.

What We Can Learn From Wesdome Gold Mines' ROCE

In summary, we're delighted to see that Wesdome Gold Mines has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, over the last five years, the stock has only delivered a 24% return to shareholders who held over that period. So to determine if Wesdome Gold Mines is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for WDO on our platform that is definitely worth checking out.

Wesdome Gold Mines 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.