Yahoo Finance Returns At Metal Tiger (LON:MTR) Are On The Way Up
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at Metal Tiger (LON:MTR) so let's look a bit deeper.
What is 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. Analysts use this formula to calculate it for Metal Tiger:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = UK£4.4m ÷ (UK£39m - UK£684k) (Based on the trailing twelve months to December 2020).
Therefore, Metal Tiger has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Metals and Mining industry.
Check out our latest analysis for Metal Tiger
Historical performance is a great place to start when researching a stock so above you can see the gauge for Metal Tiger's ROCE against it's prior returns. If you're interested in investigating Metal Tiger's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
Metal Tiger has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 12% on its capital. In addition to that, Metal Tiger is employing 2,282% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In Conclusion...
In summary, it's great to see that Metal Tiger has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 33% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a final note, we found 4 warning signs for Metal Tiger (1 doesn't sit too well with us) you should be aware of.
While Metal Tiger 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.
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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