Alpha Metallurgical Resources (NYSE:AMR) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Alpha Metallurgical Resources (NYSE:AMR) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Alpha Metallurgical Resources is:

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

0.19 = US$424m ÷ (US$2.5b - US$305m) (Based on the trailing twelve months to September 2024).

So, Alpha Metallurgical Resources has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Metals and Mining industry.

View our latest analysis for Alpha Metallurgical Resources

Above you can see how the current ROCE for Alpha Metallurgical Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Alpha Metallurgical Resources .

The Trend Of ROCE

Alpha Metallurgical Resources' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 195% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Alpha Metallurgical Resources' ROCE

To bring it all together, Alpha Metallurgical Resources has done well to increase the returns it's generating from its capital employed. And a remarkable 2,512% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Alpha Metallurgical Resources can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Alpha Metallurgical Resources that you might find interesting.

While Alpha Metallurgical Resources 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.