Grupo Rotoplas. de (BMV:AGUA) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Grupo Rotoplas. de (BMV:AGUA), it didn't seem to tick all of these boxes.

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 Grupo Rotoplas. de, this is the formula:

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

0.089 = Mex$981m ÷ (Mex$13b - Mex$1.8b) (Based on the trailing twelve months to March 2022).

Therefore, Grupo Rotoplas. de has an ROCE of 8.9%. In absolute terms, that's a low return and it also under-performs the Building industry average of 14%.

See our latest analysis for Grupo Rotoplas. de

Above you can see how the current ROCE for Grupo Rotoplas. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Grupo Rotoplas. de here for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Grupo Rotoplas. de. The company has consistently earned 8.9% for the last five years, and the capital employed within the business has risen 36% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Grupo Rotoplas. de's ROCE

Long story short, while Grupo Rotoplas. de has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 5.1% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Grupo Rotoplas. de, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Grupo Rotoplas. de 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.