A-Mark Precious Metals (NASDAQ:AMRK) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at A-Mark Precious Metals (NASDAQ:AMRK) and its trend of ROCE, we really liked what we saw.

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

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. Analysts use this formula to calculate it for A-Mark Precious Metals:

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

0.12 = US$111m ÷ (US$1.7b - US$765m) (Based on the trailing twelve months to March 2024).

Therefore, A-Mark Precious Metals has an ROCE of 12%. In isolation, that's a pretty standard return but against the Retail Distributors industry average of 16%, it's not as good.

Check out our latest analysis for A-Mark Precious Metals

roce

Above you can see how the current ROCE for A-Mark Precious Metals compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for A-Mark Precious Metals .

What Does the ROCE Trend For A-Mark Precious Metals Tell Us?

The fact that A-Mark Precious Metals is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 12% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, A-Mark Precious Metals is utilizing 466% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, A-Mark Precious Metals has decreased current liabilities to 46% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that A-Mark Precious Metals has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line On A-Mark Precious Metals' ROCE

To the delight of most shareholders, A-Mark Precious Metals has now broken into profitability. Since the stock has returned a staggering 557% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

A-Mark Precious Metals does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...

While A-Mark Precious Metals may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com