KGHM Polska Miedz (WSE:KGH) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at KGHM Polska Miedz (WSE:KGH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for KGHM Polska Miedz, this is the formula:

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

0.071 = zł2.9b ÷ (zł52b - zł11b) (Based on the trailing twelve months to September 2024).

So, KGHM Polska Miedz has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 9.4%.

View our latest analysis for KGHM Polska Miedz

Above you can see how the current ROCE for KGHM Polska Miedz compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for KGHM Polska Miedz .

So How Is KGHM Polska Miedz's ROCE Trending?

There hasn't been much to report for KGHM Polska Miedz's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if KGHM Polska Miedz doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In a nutshell, KGHM Polska Miedz has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 29% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in KGHM Polska Miedz it's worth checking out our FREE intrinsic value approximation for KGH to see if it's trading at an attractive price in other respects.

While KGHM Polska Miedz may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.