If you’re looking for a multi-bagger, there’s a few things to 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 on that note, Uranium Royalty (TSE:URC) looks quite promising in regards to its trends of return on capital.
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 Uranium Royalty is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.021 = CA$5.8m ÷ (CA$301m – CA$20m) (Based on the trailing twelve months to October 2024).
Therefore, Uranium Royalty has an ROCE of 2.1%. In absolute terms, that’s a low return and it also under-performs the Oil and Gas industry average of 9.4%.
Check out our latest analysis for Uranium Royalty
Above you can see how the current ROCE for Uranium Royalty compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for Uranium Royalty .
The fact that Uranium Royalty 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 2.1% which is a sight for sore eyes. In addition to that, Uranium Royalty is employing 870% more capital than previously which is expected of a company that’s trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
In another part of our analysis, we noticed that the company’s ratio of current liabilities to total assets decreased to 6.8%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
To the delight of most shareholders, Uranium Royalty has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it’s worth looking further into this stock because if Uranium Royalty can keep these trends up, it could have a bright future ahead.
Uranium Royalty does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant…
While Uranium Royalty isn’t earning the highest return, check out this free list of companies that are 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.
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