What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in United States Lime & Minerals’ (NASDAQ:USLM) returns on capital, so let’s have a look.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for United States Lime & Minerals:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.22 = US$113m ÷ (US$522m – US$19m) (Based on the trailing twelve months to September 2024).
Therefore, United States Lime & Minerals has an ROCE of 22%. That’s a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
See our latest analysis for United States Lime & Minerals
Historical performance is a great place to start when researching a stock so above you can see the gauge for United States Lime & Minerals’ ROCE against it’s prior returns. If you’re interested in investigating United States Lime & Minerals’ past further, check out this free graph covering United States Lime & Minerals’ past earnings, revenue and cash flow.
We like the trends that we’re seeing from United States Lime & Minerals. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 92%. 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.
All in all, it’s terrific to see that United States Lime & Minerals is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 668% 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.
Like most companies, United States Lime & Minerals does come with some risks, and we’ve found 1 warning sign that you should be aware of.
