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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Almadex Minerals (CVE:DEX) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on Almadex Minerals is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = CA$1.0m ÷ (CA$29m - CA$391k) (Based on the trailing twelve months to March 2023).
So, Almadex Minerals has an ROCE of 3.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.7%.
View our latest analysis for Almadex Minerals
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Almadex Minerals, check out these free graphs here.
How Are Returns Trending?
We're delighted to see that Almadex Minerals 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 3.6% on its capital. Not only that, but the company is utilizing 103% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
In Conclusion...
To the delight of most shareholders, Almadex Minerals has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 29% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One more thing: We've identified 4 warning signs with Almadex Minerals (at least 1 which is potentially serious) , and understanding these would certainly be useful.
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.
About TSXV:DEX
Almadex Minerals
Engages in the acquisition and exploration of mineral resource properties in Canada, the United States, and Mexico.
Flawless balance sheet very low.
