If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Antofagasta (LON:ANTO), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Antofagasta:

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

0.088 = US$1.7b ÷ (US$22b – US$2.9b) (Based on the trailing twelve months to June 2024).

Thus, Antofagasta has an ROCE of 8.8%. On its own, that's a low figure but it's around the 8.3% average generated by the Metals and Mining industry.

Check out our latest analysis for Antofagasta

LSE:ANTO Return on Capital Employed January 15th 2025

Above you can see how the current ROCE for Antofagasta 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 analyst report for Antofagasta .

How Are Returns Trending?

On the surface, the trend of ROCE at Antofagasta doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 8.8%. However it looks like Antofagasta might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Antofagasta's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 107% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a separate note, we've found 1 warning sign for Antofagasta you'll probably want to know about.

While Antofagasta 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.

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