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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Minerales y Productos Derivados (BDM:MYD), we don't think it's current trends fit the mold of a multi-bagger.
What is 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 Minerales y Productos Derivados:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.098 = €67m ÷ (€773m - €86m) (Based on the trailing twelve months to June 2020).
Therefore, Minerales y Productos Derivados has an ROCE of 9.8%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 9.2%.
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're interested in investigating Minerales y Productos Derivados' past further, check out this free graph of past earnings, revenue and cash flow.
So How Is Minerales y Productos Derivados' ROCE Trending?
The returns on capital haven't changed much for Minerales y Productos Derivados in recent years. Over the past five years, ROCE has remained relatively flat at around 9.8% and the business has deployed 30% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Minerales y Productos Derivados' ROCE
In summary, Minerales y Productos Derivados has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 186% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
One final note, you should learn about the 3 warning signs we've spotted with Minerales y Productos Derivados (including 1 which makes us a bit uncomfortable) .
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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Minerales y Productos Derivados
Minerales y Productos Derivados, S.A. produces and sells minerals and chemical products in Spain.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Good value with adequate balance sheet.