Investors Met With Slowing Returns on Capital At Molibdenos y Metales (SNSE:MOLYMET)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Molibdenos y Metales (SNSE:MOLYMET) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Molibdenos y Metales, this is the formula:

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

0.11 = US$128m ÷ (US$1.5b - US$338m) (Based on the trailing twelve months to June 2021).

Thus, Molibdenos y Metales has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Metals and Mining industry average it falls behind.

View our latest analysis for Molibdenos y Metales

Historical performance is a great place to start when researching a stock so above you can see the gauge for Molibdenos y Metales' ROCE against it's prior returns. If you're interested in investigating Molibdenos y Metales' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Over the past five years, Molibdenos y Metales' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Molibdenos y Metales doesn't end up being a multi-bagger in a few years time.

Our Take On Molibdenos y Metales' ROCE

In a nutshell, Molibdenos y Metales has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 8.7% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Molibdenos y Metales does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Molibdenos y Metales 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.

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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