Does Feria de Osorno (SNSE:FERIAOSOR) Have The DNA Of A Multi-Bagger?

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. And in light of that, the trends we're seeing at Feria de Osorno's (SNSE:FERIAOSOR) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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 Feria de Osorno:

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

0.23 = CL$10b ÷ (CL$95b - CL$51b) (Based on the trailing twelve months to September 2020).

Therefore, Feria de Osorno has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 7.9% earned by companies in a similar industry.

Check out our latest analysis for Feria de Osorno

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

What Can We Tell From Feria de Osorno's ROCE Trend?

We like the trends that we're seeing from Feria de Osorno. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, Feria de Osorno's current liabilities are still rather high at 53% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To sum it up, Feria de Osorno has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 6.0% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 2 warning signs for Feria de Osorno you'll probably want to know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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