Has Almendral (SNSE:ALMENDRAL) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Almendral (SNSE:ALMENDRAL) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Almendral is:

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

0.031 = CL$142b ÷ (CL$5.4t - CL$788b) (Based on the trailing twelve months to September 2020).

So, Almendral has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 9.6%.

Check out our latest analysis for Almendral

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Almendral has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Almendral. Over the past five years, ROCE has remained relatively flat at around 3.1% and the business has deployed 56% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Almendral's ROCE

In summary, Almendral has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Almendral has the makings of a multi-bagger.

On a final note, we found 3 warning signs for Almendral (1 is concerning) you should be aware of.

While Almendral 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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This article by Simply Wall St is general in nature. 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.
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