Empresa Constructora Moller y Pérez Cotapos (SNSE:MOLLER) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Empresa Constructora Moller y Pérez Cotapos (SNSE:MOLLER), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Empresa Constructora Moller y Pérez Cotapos, this is the formula:

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

0.029 = CL$5.1b ÷ (CL$393b - CL$221b) (Based on the trailing twelve months to June 2021).

Therefore, Empresa Constructora Moller y Pérez Cotapos has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 7.2%.

Check out our latest analysis for Empresa Constructora Moller y Pérez Cotapos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Empresa Constructora Moller y Pérez Cotapos' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Empresa Constructora Moller y Pérez Cotapos, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of Empresa Constructora Moller y Pérez Cotapos' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 2.9% for the last five years, and the capital employed within the business has risen 100% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Empresa Constructora Moller y Pérez Cotapos' current liabilities are still rather high at 56% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In summary, Empresa Constructora Moller y Pérez Cotapos has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 5 warning signs for Empresa Constructora Moller y Pérez Cotapos (2 are a bit concerning) you should be aware of.

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.

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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