- United Kingdom
- Metals and Mining
Hochschild Mining (LON:HOC) Might Have The Makings Of A Multi-Bagger
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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Hochschild Mining's (LON:HOC) returns on capital, so let's have a look.
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. The formula for this calculation on Hochschild Mining is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$194m ÷ (US$1.5b - US$188m) (Based on the trailing twelve months to December 2021).
So, Hochschild Mining has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 18% generated by the Metals and Mining industry.
Check out our latest analysis for Hochschild Mining
In the above chart we have measured Hochschild Mining's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
Hochschild Mining's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 35% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, Hochschild Mining is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 51% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Hochschild Mining does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
While Hochschild Mining isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're helping make it simple.
Find out whether Hochschild Mining is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
Hochschild Mining plc, a precious metals company, engages in the exploration, mining, processing, and sale of gold and silver in the Americas.
Undervalued with adequate balance sheet.