Compañía Cervecerías Unidas (SNSE:CCU) Has Some Way To Go To Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at Compañía Cervecerías Unidas' (SNSE:CCU) ROCE trend, we were pretty happy with what we saw.

What is 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. Analysts use this formula to calculate it for Compañía Cervecerías Unidas:

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

0.13 = CL$253b ÷ (CL$2.6t - CL$563b) (Based on the trailing twelve months to June 2021).

Therefore, Compañía Cervecerías Unidas has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

Check out our latest analysis for Compañía Cervecerías Unidas

In the above chart we have measured Compañía Cervecerías Unidas' 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 Compañía Cervecerías Unidas.

So How Is Compañía Cervecerías Unidas' ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 40% more capital in the last five years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Compañía Cervecerías Unidas has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Compañía Cervecerías Unidas' ROCE

In the end, Compañía Cervecerías Unidas has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 24% over the last five years for shareholders who have owned the stock in this period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

On a separate note, we've found 1 warning sign for Compañía Cervecerías Unidas you'll probably want to know about.

While Compañía Cervecerías Unidas 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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