The Trends At Aena S.M.E (BME:AENA) That You Should Know About

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Aena S.M.E (BME:AENA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Aena S.M.E, this is the formula:

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

0.078 = €1.1b ÷ (€16b - €2.5b) (Based on the trailing twelve months to June 2020).

So, Aena S.M.E has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 7.3%.

See our latest analysis for Aena S.M.E

In the above chart we have measured Aena S.M.E's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Aena S.M.E's ROCE Trending?

Over the past five years, Aena S.M.E's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Aena S.M.E in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That probably explains why Aena S.M.E has been paying out 74% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

Our Take On Aena S.M.E's ROCE

In a nutshell, Aena S.M.E has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 28% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One final note, you should learn about the 3 warning signs we've spotted with Aena S.M.E (including 1 which is makes us a bit uncomfortable) .

While Aena S.M.E isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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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