We Like These Underlying Trends At Miquel y Costas & Miquel (BME:MCM)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at Miquel y Costas & Miquel (BME:MCM) and its trend of ROCE, we really liked what we saw.

What is 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 Miquel y Costas & Miquel, this is the formula:

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

0.16 = €58m ÷ (€421m - €58m) (Based on the trailing twelve months to September 2020).

So, Miquel y Costas & Miquel has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 5.7% it's much better.

See our latest analysis for Miquel y Costas & Miquel

In the above chart we have measured Miquel y Costas & Miquel's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Miquel y Costas & Miquel here for free.

So How Is Miquel y Costas & Miquel's ROCE Trending?

The trends we've noticed at Miquel y Costas & Miquel are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 23% more capital is being employed now too. So we're very much inspired by what we're seeing at Miquel y Costas & Miquel thanks to its ability to profitably reinvest capital.

What We Can Learn From Miquel y Costas & Miquel's ROCE

All in all, it's terrific to see that Miquel y Costas & Miquel is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 36% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

While Miquel y Costas & Miquel looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MCM is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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