Here's What To Make Of Grupo Gigante S. A. B. de C. V's (BMV:GIGANTE) Decelerating Rates Of Return

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Having said that, from a first glance at Grupo Gigante S. A. B. de C. V (BMV:GIGANTE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Gigante S. A. B. de C. V:

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

0.074 = Mex$2.9b ÷ (Mex$49b - Mex$9.0b) (Based on the trailing twelve months to September 2022).

Thus, Grupo Gigante S. A. B. de C. V has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 10%.

View our latest analysis for Grupo Gigante S. A. B. de C. V

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 Grupo Gigante S. A. B. de C. V has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

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

Over the past five years, Grupo Gigante S. A. B. de C. V's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Grupo Gigante S. A. B. de C. V in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Grupo Gigante S. A. B. de C. V's ROCE

We can conclude that in regards to Grupo Gigante S. A. B. de C. V's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 37% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Grupo Gigante S. A. B. de C. V does have some risks, we noticed 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.

While Grupo Gigante S. A. B. de C. V may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.