Grupo Carso. de (BMV:GCARSOA1) May Have Issues Allocating Its Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Grupo Carso. de (BMV:GCARSOA1), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Grupo Carso. de is:

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

0.086 = Mex$12b ÷ (Mex$171b - Mex$34b) (Based on the trailing twelve months to June 2021).

So, Grupo Carso. de has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 6.1% generated by the Industrials industry, it's much better.

View our latest analysis for Grupo Carso. de

In the above chart we have measured Grupo Carso. de'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 Grupo Carso. de.

What Does the ROCE Trend For Grupo Carso. de Tell Us?

When we looked at the ROCE trend at Grupo Carso. de, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.6% from 16% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Grupo Carso. de's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Grupo Carso. de is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 11% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Grupo Carso. de could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Grupo Carso. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.
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