Slowing Rates Of Return At Agnico Eagle Mines (NYSE:AEM) Leave Little Room For Excitement


What trends should we be on the lookout for when trying to identify stocks that can multiply in value over the long term? Typically, we want to notice a growth trend return on the capital employed (ROCE) and also an expansion base of the capital employed. This shows us that this is a compounding machine capable of continuously reinvesting its profits in the business and generating higher returns. However, after research Agnico Eagle mines (NYSE:AEM), we don’t think its current trends fit the mold of a multibagger.

What is Return on Capital Employed (ROCE)?

If you’ve never worked with ROCE, it measures the “return” (profit before tax) that a company earns on the capital employed in its business. Analysts use this formula to calculate it for Agnico Eagle Mines:

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

0.061 = $1.4B ÷ ($23B – $984M) (Based on the last twelve months ended June 2022).

Because of this, Agnico Eagle Mines has a ROCE of 6.1%. That’s a low yield in absolute terms, and it’s also below the metals and mining industry average of 21%.

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Check out our latest analysis for Agnico Eagle Mines

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NYSE:AEM Return on Capital Employed September 24, 2022

In the chart above, we have compared Agnico Eagle Mines’ past ROCE to its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, be sure to check out ours free Report for Agnico Eagle Mines.

What the ROCE trend can tell us

There are better returns on investment than what we see at Agnico Eagle Mines. Over the past five years, ROCE has remained relatively flat at around 6.1% and the company has invested 202% more capital in its operations. This poor ROCE does not inspire confidence at this time, and with the increase in capital employed it is evident that the company is not allocating funds to high-yield investments.

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The final result

In summary, Agnico Eagle Mines simply reinvested capital and achieved the same low rate of return as before. Additionally, the stock’s total return for shareholders has been flat over the past five years, which isn’t too surprising. In any case, the stock does not have those characteristics of a multibagger discussed above. So if that’s what you’re looking for, we think you’ll have better luck elsewhere.

With virtually every business facing risk, it pays to be aware of them, and we’ve spotted them 4 warning signs for Agnico Eagle Mines (1 of which doesn’t sit well with us!) that you should know.

Although Agnico Eagle Mines does not have the highest return, check this out free List of companies that generate high returns on equity with strong balance sheets.

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This Simply Wall St article is of a general nature. We provide comments based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

The assessment is complex, but we help to simplify it.

find out if Agnico Eagle mines may be over or under priced by reviewing our comprehensive analysis which includes the following Fair Value Estimates, Risks and Warnings, Dividends, Insider Trading and Financial Health.

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