Freeport-McMoRan (NYSE:FCX) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine.

With that in mind, the ROCE of Freeport-McMoRan (NYSE:FCX[1]) looks decent, right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Freeport-McMoRan, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) / (Total Assets - Current Liabilities)

0.13 = US£6.2b / (US£53b - US£5.8b) (Based on the trailing twelve months to December 2023). So, Freeport-McMoRan has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Metals and Mining industry.

Check out our latest analysis for Freeport-McMoRan[2]

roceNYSE:FCX Return on Capital Employed March 15th 2024

Above you can see how the current ROCE for Freeport-McMoRan 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 Freeport-McMoRan[3] .

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 20% more capital into its operations.

13% is a pretty standard return, and it provides some comfort knowing that Freeport-McMoRan has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Freeport-McMoRan has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 256% return to those who've held over the last five years.

So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research. Like most companies, Freeport-McMoRan does come with some risks, and we've found 1 warning sign[4] that you should be aware of. While Freeport-McMoRan 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.[5]

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

Find out whether Freeport-McMoRan 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[6]

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.[7]

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.

References

  1. ^ NYSE:FCX (simplywall.st)
  2. ^ Check out our latest analysis for Freeport-McMoRan (simplywall.st)
  3. ^ analyst report for Freeport-McMoRan (simplywall.st)
  4. ^ 1 warning sign (simplywall.st)
  5. ^ list here. (simplywall.st)
  6. ^ View the Free Analysis (simplywall.st)
  7. ^ Get in touch (feedback.simplywall.st)

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