Returns At Ferrocarril del Pacífico (SNSE:FEPASA) Appear To Be Weighed Down

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Ferrocarril del Pacífico (SNSE:FEPASA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for Ferrocarril del Pacífico:

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

0.027 = CL$2.5b ÷ (CL$111b - CL$19b) (Based on the trailing twelve months to December 2020).

Thus, Ferrocarril del Pacífico has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Transportation industry average of 5.9%.

View our latest analysis for Ferrocarril del Pacífico

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 want to delve into the historical earnings, revenue and cash flow of Ferrocarril del Pacífico, check out these free graphs here.

The Trend Of ROCE

In terms of Ferrocarril del Pacífico's historical ROCE trend, it doesn't exactly demand attention. The company has employed 36% more capital in the last five years, and the returns on that capital have remained stable at 2.7%. 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.

The Bottom Line

As we've seen above, Ferrocarril del Pacífico's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 13% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 2 warning signs for Ferrocarril del Pacífico you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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