Investors Met With Slowing Returns on Capital At Minera Valparaiso (SNSE:MINERA)

If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Minera Valparaiso (SNSE:MINERA), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 Minera Valparaiso:

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

0.041 = US$397m ÷ (US$10b - US$485m) (Based on the trailing twelve months to March 2021).

Thus, Minera Valparaiso has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.6%.

Check out our latest analysis for Minera Valparaiso

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

What Does the ROCE Trend For Minera Valparaiso Tell Us?

Over the past five years, Minera Valparaiso's 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 unless we see a substantial change at Minera Valparaiso in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

We can conclude that in regards to Minera Valparaiso's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 44% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Minera Valparaiso (of which 1 is significant!) that you should know about.

While Minera Valparaiso isn't earning the highest return, check out this free list of companies that are 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.