United States Lime & Minerals (NASDAQ:USLM) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at United States Lime & Minerals (NASDAQ:USLM) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 United States Lime & Minerals, this is the formula:

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

0.16 = US$55m ÷ (US$368m - US$16m) (Based on the trailing twelve months to December 2022).

Thus, United States Lime & Minerals has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Basic Materials industry.

See our latest analysis for United States Lime & Minerals

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

The Trend Of ROCE

United States Lime & Minerals is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. 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 61%. So we're very much inspired by what we're seeing at United States Lime & Minerals thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, United States Lime & Minerals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 133% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with United States Lime & Minerals and understanding it should be part of your investment process.

While United States Lime & Minerals 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.