Organización Soriana S. A. B. de C. V (BMV:SORIANAB) Has More To Do To Multiply In Value Going Forward

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at Organización Soriana S. A. B. de C. V (BMV:SORIANAB), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Organización Soriana S. A. B. de C. V:

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

0.085 = Mex$9.2b ÷ (Mex$135b - Mex$27b) (Based on the trailing twelve months to March 2022).

Thus, Organización Soriana S. A. B. de C. V has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Consumer Retailing industry average of 9.1%.

View our latest analysis for Organización Soriana S. A. B. de C. V

In the above chart we have measured Organización Soriana S. A. B. de C. V'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.

So How Is Organización Soriana S. A. B. de C. V's ROCE Trending?

There hasn't been much to report for Organización Soriana S. A. B. de C. V's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Organización Soriana 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.

What We Can Learn From Organización Soriana S. A. B. de C. V's ROCE

In summary, Organización Soriana S. A. B. de C. V isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 44% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Organización Soriana S. A. B. de C. V that you might find interesting.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.