Empresas La Polar (SNSE:NUEVAPOLAR) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Having said that, from a first glance at Empresas La Polar (SNSE:NUEVAPOLAR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Empresas La Polar is:

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

0.021 = CL$6.5b ÷ (CL$420b - CL$113b) (Based on the trailing twelve months to September 2022).

So, Empresas La Polar has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 7.6%.

See our latest analysis for Empresas La Polar

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

How Are Returns Trending?

When we looked at the ROCE trend at Empresas La Polar, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.1% from 4.7% five years ago. 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.

What We Can Learn From Empresas La Polar's ROCE

In summary, Empresas La Polar is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 92% in the last five years. Therefore based on the analysis done in this article, we don't think Empresas La Polar has the makings of a multi-bagger.

On a final note, we found 2 warning signs for Empresas La Polar (1 is concerning) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.