If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So on that note, Viña Concha y Toro (SNSE:CONCHATORO) looks quite promising in regards to its trends of return on capital.
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. To calculate this metric for Viña Concha y Toro, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = CL$112b ÷ (CL$1.3t - CL$293b) (Based on the trailing twelve months to September 2020).
So, Viña Concha y Toro has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.7% generated by the Beverage industry.
Above you can see how the current ROCE for Viña Concha y Toro 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 Viña Concha y Toro.
So How Is Viña Concha y Toro's ROCE Trending?
Investors would be pleased with what's happening at Viña Concha y Toro. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 39%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
Our Take On Viña Concha y Toro's ROCE
In summary, it's great to see that Viña Concha y Toro can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 31% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.
If you want to continue researching Viña Concha y Toro, you might be interested to know about the 1 warning sign that our analysis has discovered.
While Viña Concha y Toro 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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