The Return Trends At Grupo Empresas Navieras (SNSE:NAVIERA) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Grupo Empresas Navieras (SNSE:NAVIERA) so let's look a bit deeper.

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. To calculate this metric for Grupo Empresas Navieras, this is the formula:

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

0.10 = US$103m ÷ (US$1.3b - US$288m) (Based on the trailing twelve months to March 2023).

Thus, Grupo Empresas Navieras has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Shipping industry average of 9.2%.

Check out our latest analysis for Grupo Empresas Navieras

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're interested in investigating Grupo Empresas Navieras' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Grupo Empresas Navieras Tell Us?

Grupo Empresas Navieras is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 30% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Grupo Empresas Navieras has done well to increase the returns it's generating from its capital employed. And a remarkable 155% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Grupo Empresas Navieras can keep these trends up, it could have a bright future ahead.

Grupo Empresas Navieras does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Grupo Empresas Navieras 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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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.