Stock Analysis

Slowing Rates Of Return At Agnico Eagle Mines (NYSE:AEM) Leave Little Room For Excitement

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NYSE:AEM
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Agnico Eagle Mines (NYSE:AEM), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. Analysts use this formula to calculate it for Agnico Eagle Mines:

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

0.061 = US$1.4b ÷ (US$23b - US$984m) (Based on the trailing twelve months to June 2022).

Therefore, Agnico Eagle Mines has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 21%.

View our latest analysis for Agnico Eagle Mines

roce
NYSE:AEM Return on Capital Employed September 24th 2022

In the above chart we have measured Agnico Eagle Mines' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Agnico Eagle Mines.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Agnico Eagle Mines. Over the past five years, ROCE has remained relatively flat at around 6.1% and the business has deployed 202% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line

In summary, Agnico Eagle Mines has simply been reinvesting capital and generating the same low rate of return as before. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Agnico Eagle Mines (of which 1 doesn't sit too well with us!) that you should know about.

While Agnico Eagle Mines 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 Agnico Eagle Mines 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

About NYSE:AEM

Agnico Eagle Mines

Agnico Eagle Mines Limited engages in the exploration, development, and production of mineral properties in Canada, Mexico, and Finland.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth1
Past Performance1
Financial Health5
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet unattractive dividend payer.