Has Grupo Rotoplas. de (BMV:AGUA) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Grupo Rotoplas. de (BMV:AGUA), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.099 = Mex$1.1b ÷ (Mex$13b - Mex$1.8b) (Based on the trailing twelve months to September 2020).

Therefore, Grupo Rotoplas. de has an ROCE of 9.9%. On its own, that's a low figure but it's around the 9.2% average generated by the Building industry.

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 to see what analysts are forecasting going forward, you should check out our free report for Grupo Rotoplas. de.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Grupo Rotoplas. de in recent years. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 9.9%. 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.

The Key Takeaway

Long story short, while Grupo Rotoplas. de has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 4.6% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing: We've identified 3 warning signs with Grupo Rotoplas. de (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

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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