Alamos Gold (TSE:AGI) Might Have The Makings Of A Multi-Bagger
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Alamos Gold's (TSE:AGI) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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 Alamos Gold, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = US$308m ÷ (US$3.9b - US$228m) (Based on the trailing twelve months to September 2023).
Therefore, Alamos Gold has an ROCE of 8.4%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 2.8%.
Check out our latest analysis for Alamos Gold
In the above chart we have measured Alamos Gold's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alamos Gold here for free.
So How Is Alamos Gold's ROCE Trending?
Alamos Gold is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 485% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
To sum it up, Alamos Gold is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Alamos Gold can keep these trends up, it could have a bright future ahead.
While Alamos Gold looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AGI is currently trading for a fair price.
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.
