We Like Albemarle's (NYSE:ALB) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Albemarle's (NYSE:ALB) 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. To calculate this metric for Albemarle, this is the formula:

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

0.24 = US$3.3b ÷ (US$18b - US$3.5b) (Based on the trailing twelve months to March 2023).

Thus, Albemarle has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 11%.

View our latest analysis for Albemarle

Above you can see how the current ROCE for Albemarle 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 Albemarle here for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Albemarle. Over the last five years, returns on capital employed have risen substantially to 24%. 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 110%. So we're very much inspired by what we're seeing at Albemarle thanks to its ability to profitably reinvest capital.

What We Can Learn From Albemarle's ROCE

In summary, it's great to see that Albemarle can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 139% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 1 warning sign for Albemarle you'll probably want to know about.

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.

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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.