To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, United States Lime & Minerals (NASDAQ:USLM) looks quite promising in regards to its trends of return on capital.

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 United States Lime & Minerals:

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

0.19 = US$79m ÷ (US$424m - US$16m) (Based on the trailing twelve months to September 2023).

Thus, United States Lime & Minerals has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Basic Materials industry.

View 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'd like to look at how United States Lime & Minerals has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From United States Lime & Minerals' ROCE Trend?

Investors would be pleased with what's happening at United States Lime & Minerals. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 74% more capital is being employed now too. 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.

What We Can Learn From United States Lime & Minerals' ROCE

To sum it up, United States Lime & Minerals has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

While United States Lime & Minerals looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether USLM is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.