Yahoo Finance Alpha Metallurgical Resources (NYSE:AMR) Is Achieving High Returns On Its Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So when we looked at the ROCE trend of Alpha Metallurgical Resources (NYSE:AMR) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
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 Alpha Metallurgical Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.41 = US$856m ÷ (US$2.4b - US$310m) (Based on the trailing twelve months to December 2023).
Therefore, Alpha Metallurgical Resources has an ROCE of 41%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.
See 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, you can check out the forecasts from the analysts covering Alpha Metallurgical Resources for free.
So How Is Alpha Metallurgical Resources' ROCE Trending?
Alpha Metallurgical Resources is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 294% over the last five years. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line
In summary, we're delighted to see that Alpha Metallurgical Resources has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 520% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Alpha Metallurgical Resources (of which 1 is a bit unpleasant!) that you should know about.
Alpha Metallurgical Resources is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
