Does Kinetic Mines and Energy (HKG:1277) Have The DNA Of 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Kinetic Mines and Energy (HKG:1277) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Kinetic Mines and Energy:

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

0.41 = CN¥994m ÷ (CN¥3.1b - CN¥653m) (Based on the trailing twelve months to June 2020).

So, Kinetic Mines and Energy has an ROCE of 41%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 6.8%.

View our latest analysis for Kinetic Mines and Energy

Above you can see how the current ROCE for Kinetic Mines and Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kinetic Mines and Energy here for free.

What Can We Tell From Kinetic Mines and Energy's ROCE Trend?

Investors would be pleased with what's happening at Kinetic Mines and Energy. Over the last five years, returns on capital employed have risen substantially to 41%. 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 189%. So we're very much inspired by what we're seeing at Kinetic Mines and Energy thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Kinetic Mines and Energy has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Kinetic Mines and Energy's ROCE

To sum it up, Kinetic Mines and Energy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Kinetic Mines and Energy, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

When trading Kinetic Mines and Energy 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.