Yahoo Finance Alpha Metallurgical Resources (NYSE:AMR) Could Become 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Alpha Metallurgical Resources' (NYSE:AMR) look very promising so lets take a look.
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. The formula for this calculation on Alpha Metallurgical Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.49 = US$857m ÷ (US$2.1b - US$361m) (Based on the trailing twelve months to March 2022).
Therefore, Alpha Metallurgical Resources has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 19%.
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, you can check out the forecasts from the analysts covering Alpha Metallurgical Resources here for free.
What The Trend Of ROCE Can Tell Us
Alpha Metallurgical Resources is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 49%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 118%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
To sum it up, Alpha Metallurgical Resources has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 125% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.
If you'd like to know more about Alpha Metallurgical Resources, we've spotted 3 warning signs, and 2 of them are a bit concerning.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
