Under The Bonnet, Sociedad Punta del Cobre's (SNSE:PUCOBRE) Returns Look Impressive

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Sociedad Punta del Cobre (SNSE:PUCOBRE) we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Sociedad Punta del Cobre:

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

0.22 = US$112m ÷ (US$632m - US$127m) (Based on the trailing twelve months to March 2021).

Thus, Sociedad Punta del Cobre has an ROCE of 22%. While that is an outstanding return, the rest of the Metals and Mining industry generates similar returns, on average.

See our latest analysis for Sociedad Punta del Cobre

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

How Are Returns Trending?

The trends we've noticed at Sociedad Punta del Cobre are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 41%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Sociedad Punta del Cobre is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 65% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Sociedad Punta del Cobre can keep these trends up, it could have a bright future ahead.

While Sociedad Punta del Cobre looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PUCOBRE is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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