Yahoo Finance Is Regis Resources (ASX:RRL) A Compounding Machine?
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Regis Resources (ASX:RRL) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Regis Resources, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = AU$289m ÷ (AU$1.2b - AU$102m) (Based on the trailing twelve months to June 2020).
So, Regis Resources has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.
Check out our latest analysis for Regis Resources
Above you can see how the current ROCE for Regis Resources 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 report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
It's hard not to be impressed by Regis Resources' returns on capital. The company has employed 122% more capital in the last five years, and the returns on that capital have remained stable at 28%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.
Our Take On Regis Resources' ROCE
In summary, we're delighted to see that Regis Resources has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 138% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Regis Resources does have some risks though, and we've spotted 2 warning signs for Regis Resources that you might be interested in.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
This article by Simply Wall St is general in nature. 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.
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