Aena S.M.E's (BME:AENA) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Aena S.M.E (BME:AENA), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Aena S.M.E:

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

0.10 = €1.5b ÷ (€17b - €2.7b) (Based on the trailing twelve months to March 2023).

Thus, Aena S.M.E has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 7.9% it's much better.

View our latest analysis for Aena S.M.E

In the above chart we have measured Aena S.M.E's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Aena S.M.E.

SWOT Analysis for Aena S.M.E

So How Is Aena S.M.E's ROCE Trending?

Things have been pretty stable at Aena S.M.E, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Aena S.M.E to be a multi-bagger going forward. That being the case, it makes sense that Aena S.M.E has been paying out 77% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

What We Can Learn From Aena S.M.E's ROCE

In a nutshell, Aena S.M.E has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 1.4% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Aena S.M.E, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Aena S.M.E 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.