The Returns At Consorcio ARA S. A. B. de C. V (BMV:ARA) Provide Us With Signs Of What's To Come

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Consorcio ARA S. A. B. de C. V (BMV:ARA) and its ROCE trend, we weren't exactly thrilled.

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

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 Consorcio ARA S. A. B. de C. V:

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

0.026 = Mex$466m ÷ (Mex$21b - Mex$2.7b) (Based on the trailing twelve months to December 2020).

Thus, Consorcio ARA S. A. B. de C. V has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 5.7%.

View our latest analysis for Consorcio ARA S. A. B. de C. V

In the above chart we have measured Consorcio ARA S. A. B. de C. V's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Consorcio ARA S. A. B. de C. V here for free.

What Can We Tell From Consorcio ARA S. A. B. de C. V's ROCE Trend?

When we looked at the ROCE trend at Consorcio ARA S. A. B. de C. V, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.6% from 5.2% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From Consorcio ARA S. A. B. de C. V's ROCE

In summary, we're somewhat concerned by Consorcio ARA S. A. B. de C. V's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 26% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Consorcio ARA S. A. B. de C. V, you might be interested to know about the 1 warning sign that our analysis has discovered.

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