We Think Corporativo Fragua. de (BMV:FRAGUAB) Might Have The DNA Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Corporativo Fragua. de (BMV:FRAGUAB) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Corporativo Fragua. de, this is the formula:

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

0.32 = Mex$6.9b ÷ (Mex$41b - Mex$20b) (Based on the trailing twelve months to March 2023).

So, Corporativo Fragua. de has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Consumer Retailing industry average of 19%.

Check out our latest analysis for Corporativo Fragua. de

In the above chart we have measured Corporativo Fragua. 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.

SWOT Analysis for Corporativo Fragua. de

The Trend Of ROCE

We like the trends that we're seeing from Corporativo Fragua. de. Over the last five years, returns on capital employed have risen substantially to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 84% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Corporativo Fragua. de has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Corporativo Fragua. de's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Corporativo Fragua. de has. And a remarkable 129% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Corporativo Fragua. de looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FRAGUA B is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.