Is Eléctrica Puntilla (SNSE:PUNTILLA) A Future Multi-bagger?

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. So on that note, Eléctrica Puntilla (SNSE:PUNTILLA) looks quite promising in regards to its trends of return on capital.

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 Eléctrica Puntilla is:

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

0.049 = CL$7.1b ÷ (CL$167b - CL$23b) (Based on the trailing twelve months to September 2020).

Thus, Eléctrica Puntilla has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.4%.

See our latest analysis for Eléctrica Puntilla

Historical performance is a great place to start when researching a stock so above you can see the gauge for Eléctrica Puntilla's ROCE against it's prior returns. If you'd like to look at how Eléctrica Puntilla 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?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, returns on capital have grown by 77%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Eléctrica Puntilla appears to been achieving more with less, since the business is using 36% less capital to run its operation. Eléctrica Puntilla may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Eléctrica Puntilla has been able to generate higher returns from less capital. Given the stock has declined 21% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 1 warning sign for Eléctrica Puntilla that we think you should be aware of.

While Eléctrica Puntilla 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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