Should We Be Excited About The Trends Of Returns At Sociedad Anónima Viña Santa Rita (SNSE:SANTA RITA)?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Sociedad Anónima Viña Santa Rita (SNSE:SANTA RITA), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Sociedad Anónima Viña Santa Rita:

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

0.066 = CL$18b ÷ (CL$347b - CL$80b) (Based on the trailing twelve months to September 2020).

Therefore, Sociedad Anónima Viña Santa Rita has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Beverage industry average of 9.7%.

View our latest analysis for Sociedad Anónima Viña Santa Rita

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

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Sociedad Anónima Viña Santa Rita. Over the past five years, ROCE has remained relatively flat at around 6.6% and the business has deployed 29% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Sociedad Anónima Viña Santa Rita has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 2 warning signs for Sociedad Anónima Viña Santa Rita that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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