Returns On Capital At Desarrolladora Homex. de (BMV:HOMEX) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating Desarrolladora Homex. de (BMV:HOMEX), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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 Desarrolladora Homex. de is:

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

0.029 = Mex$9.5m ÷ (Mex$1.2b - Mex$916m) (Based on the trailing twelve months to June 2022).

So, Desarrolladora Homex. de has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 5.1%.

See our latest analysis for Desarrolladora Homex. de

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Desarrolladora Homex. de has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

There hasn't been much to report for Desarrolladora Homex. de's returns and its level of capital employed because both metrics have been steady for the past . Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Desarrolladora Homex. de to be a multi-bagger going forward.

On a side note, Desarrolladora Homex. de's current liabilities are still rather high at 73% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Desarrolladora Homex. de's ROCE

In a nutshell, Desarrolladora Homex. de has been trudging along with the same returns from the same amount of capital over the last . It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 97% in the last five years. Therefore based on the analysis done in this article, we don't think Desarrolladora Homex. de has the makings of a multi-bagger.

If you'd like to know more about Desarrolladora Homex. de, we've spotted 4 warning signs, and 2 of them make us uncomfortable.

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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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.