There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Wheaton Precious Metals’ (TSE:WPM) returns on capital, so let’s have a look.
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Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wheaton Precious Metals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.085 = US$630m ÷ (US$7.4b – US$30m) (Based on the trailing twelve months to December 2024).
Thus, Wheaton Precious Metals has an ROCE of 8.5%. On its own that’s a low return, but compared to the average of 4.1% generated by the Metals and Mining industry, it’s much better.
See our latest analysis for Wheaton Precious Metals
Above you can see how the current ROCE for Wheaton Precious Metals 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 Wheaton Precious Metals .
Wheaton Precious Metals has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 322% 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.
To sum it up, Wheaton Precious Metals is collecting higher returns from the same amount of capital, and that’s impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 99% return over the last five years. 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.