The Returns At Intrepid Potash (NYSE:IPI) Aren't Growing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after briefly looking over the numbers, we don't think Intrepid Potash (NYSE:IPI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Intrepid Potash, this is the formula:

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

0.022 = US$17m ÷ (US$793m - US$38m) (Based on the trailing twelve months to September 2023).

So, Intrepid Potash has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 10%.

See our latest analysis for Intrepid Potash

In the above chart we have measured Intrepid Potash's 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 Intrepid Potash.

So How Is Intrepid Potash's ROCE Trending?

In terms of Intrepid Potash's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 2.2% and the business has deployed 57% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Intrepid Potash's ROCE

As we've seen above, Intrepid Potash's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 13% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Intrepid Potash has the makings of a multi-bagger.

If you want to continue researching Intrepid Potash, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.