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June 21, 2024
PI Global Investments
Precious Metals

Returns At Wheaton Precious Metals (TSE:WPM) Are On The Way Up


Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So on that note, Wheaton Precious Metals (TSE:WPM) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Wheaton Precious Metals, this is the formula:

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

0.066 = US$454m ÷ (US$6.9b – US$22m) (Based on the trailing twelve months to September 2023).

So, Wheaton Precious Metals has an ROCE of 6.6%. In absolute terms, that’s a low return, but it’s much better than the Metals and Mining industry average of 2.8%.

Check out our latest analysis for Wheaton Precious Metals

TSX:WPM Return on Capital Employed January 4th 2024

In the above chart we have measured Wheaton Precious Metals’ prior ROCE against its prior performance, but the future is arguably more important. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Wheaton Precious Metals.

The Trend Of ROCE

Wheaton Precious Metals has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 616% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. It’s worth looking deeper into this though because while it’s great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Wheaton Precious Metals’ ROCE

To bring it all together, Wheaton Precious Metals has done well to increase the returns it’s generating from its capital employed. And a remarkable 166% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it’s worth looking further into this stock because if Wheaton Precious Metals can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That’s why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we’re helping make it simple.

Find out whether Wheaton Precious Metals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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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