The Return Trends At Eléctrica Puntilla (SNSE:PUNTILLA) Look Promising

If you're looking for a multi-bagger, there's a few things to 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. Speaking of which, we noticed some great changes in Eléctrica Puntilla's (SNSE:PUNTILLA) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Eléctrica Puntilla, this is the formula:

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

0.055 = CL$7.7b ÷ (CL$163b - CL$23b) (Based on the trailing twelve months to December 2020).

So, Eléctrica Puntilla has an ROCE of 5.5%. On its own, that's a low figure but it's around the 6.7% average generated by the Renewable Energy industry.

Check out 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?

You'd find it hard not to be impressed with the ROCE trend at Eléctrica Puntilla. We found that the returns on capital employed over the last five years have risen by 84%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. 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. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

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 22% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Eléctrica Puntilla does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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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