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- SNSE:HITES
Empresas Hites (SNSE:HITES) Could Be Struggling To Allocate Capital
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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Empresas Hites (SNSE:HITES), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Empresas Hites is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00098 = CL$319m ÷ (CL$425b - CL$100b) (Based on the trailing twelve months to December 2020).
Therefore, Empresas Hites has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 4.2%.
See our latest analysis for Empresas Hites
In the above chart we have measured Empresas Hites' 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 Empresas Hites.
What Can We Tell From Empresas Hites' ROCE Trend?
When we looked at the ROCE trend at Empresas Hites, we didn't gain much confidence. To be more specific, ROCE has fallen from 11% over the last five years. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line On Empresas Hites' ROCE
In summary, Empresas Hites is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 38% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
On a final note, we found 5 warning signs for Empresas Hites (2 are concerning) you should be aware of.
While Empresas Hites 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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About SNSE:HITES
Moderate and good value.