Will Compañía Cervecerías Unidas (SNSE:CCU) Multiply In Value Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Compañía Cervecerías Unidas (SNSE:CCU), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Compañía Cervecerías Unidas is:

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

0.088 = CL$178b ÷ (CL$2.5t - CL$431b) (Based on the trailing twelve months to September 2020).

Thus, Compañía Cervecerías Unidas has an ROCE of 8.8%. On its own, that's a low figure but it's around the 9.7% average generated by the Beverage industry.

View our latest analysis for Compañía Cervecerías Unidas

Above you can see how the current ROCE for Compañía Cervecerías Unidas compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Compañía Cervecerías Unidas.

How Are Returns Trending?

On the surface, the trend of ROCE at Compañía Cervecerías Unidas doesn't inspire confidence. Around five years ago the returns on capital were 14%, but since then they've fallen to 8.8%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Compañía Cervecerías Unidas' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 11% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Compañía Cervecerías Unidas has the makings of a multi-bagger.

One more thing, we've spotted 2 warning signs facing Compañía Cervecerías Unidas that you might find interesting.

While Compañía Cervecerías Unidas 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.

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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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