Stock Analysis

Here's What's Concerning About Grupo Vasconia's (BMV:VASCONI) Returns On Capital

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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Grupo Vasconia (BMV:VASCONI), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Grupo Vasconia:

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

0.0019 = Mex$7.1m ÷ (Mex$5.5b - Mex$1.8b) (Based on the trailing twelve months to December 2022).

Thus, Grupo Vasconia has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 6.9%.

View our latest analysis for Grupo Vasconia

BMV:VASCONI * Return on Capital Employed March 18th 2023

Above you can see how the current ROCE for Grupo Vasconia compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Grupo Vasconia here for free.

What The Trend Of ROCE Can Tell Us

In terms of Grupo Vasconia's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 7.3%, but since then they've fallen to 0.2%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Grupo Vasconia's ROCE

In summary, Grupo Vasconia is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last five years, the stock has given away 68% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Grupo Vasconia has the makings of a multi-bagger.

Grupo Vasconia does have some risks, we noticed 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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Find out whether Grupo Vasconia is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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