Be Wary Of Hudbay Minerals (TSE:HBM) And Its Returns On Capital

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Hudbay Minerals (TSE:HBM), we weren't too hopeful.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Hudbay Minerals:

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

0.029 = US$117m ÷ (US$4.5b - US$458m) (Based on the trailing twelve months to March 2022).

Thus, Hudbay Minerals has an ROCE of 2.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 2.6%.

See our latest analysis for Hudbay Minerals

roce

Above you can see how the current ROCE for Hudbay Minerals compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hudbay Minerals here for free.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Hudbay Minerals. Unfortunately the returns on capital have diminished from the 4.8% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Hudbay Minerals becoming one if things continue as they have.

The Bottom Line On Hudbay Minerals' ROCE

In summary, it's unfortunate that Hudbay Minerals is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 46% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

While Hudbay Minerals doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Hudbay Minerals 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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