The Returns At Grupo Rotoplas. de (BMV:AGUA) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Grupo Rotoplas. de's (BMV:AGUA) trend of ROCE, we liked what we saw.

What is 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. Analysts use this formula to calculate it for Grupo Rotoplas. de:

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

0.11 = Mex$1.1b ÷ (Mex$13b - Mex$2.2b) (Based on the trailing twelve months to June 2021).

Therefore, Grupo Rotoplas. de has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Building industry average it falls behind.

See our latest analysis for Grupo Rotoplas. de

In the above chart we have measured Grupo Rotoplas. de's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Grupo Rotoplas. de's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 33% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Grupo Rotoplas. de has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Grupo Rotoplas. de's ROCE

In the end, Grupo Rotoplas. de has proven its ability to adequately reinvest capital at good rates of return. However, despite the favorable fundamentals, the stock has fallen 23% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Grupo Rotoplas. de (of which 2 don't sit too well with us!) that you should know about.

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.

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.

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