AltynGold (LON:ALTN) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in AltynGold's (LON:ALTN) returns on capital, so let's have a look.

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. The formula for this calculation on AltynGold is:

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

0.21 = US$17m ÷ (US$98m - US$20m) (Based on the trailing twelve months to December 2022).

Thus, AltynGold has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 13%.

View our latest analysis for AltynGold

Historical performance is a great place to start when researching a stock so above you can see the gauge for AltynGold's ROCE against it's prior returns. If you'd like to look at how AltynGold has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is AltynGold's ROCE Trending?

The fact that AltynGold is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 21% on its capital. And unsurprisingly, like most companies trying to break into the black, AltynGold is utilizing 52% more capital than it was five years ago. 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.

The Key Takeaway

Overall, AltynGold gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has only returned 23% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you want to continue researching AltynGold, you might be interested to know about the 3 warning signs that our analysis has discovered.

AltynGold is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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

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.