Are Investors Overlooking Returns On Capital At Wal-Mart de México. de (BMV:WALMEX)?

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. 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. Ergo, when we looked at the ROCE trends at Wal-Mart de México. de (BMV:WALMEX), we liked what we saw.

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. To calculate this metric for Wal-Mart de México. de, this is the formula:

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

0.23 = Mex$56b ÷ (Mex$371b - Mex$133b) (Based on the trailing twelve months to September 2020).

So, Wal-Mart de México. de has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 9.4% earned by companies in a similar industry.

See our latest analysis for Wal-Mart de México. de

In the above chart we have measured Wal-Mart de México. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Wal-Mart de México. de.

So How Is Wal-Mart de México. de's ROCE Trending?

Wal-Mart de México. de deserves to be commended in regards to it's returns. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 23%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Wal-Mart de México. de can keep this up, we'd be very optimistic about its future.

The Bottom Line On Wal-Mart de México. de's ROCE

In short, we'd argue Wal-Mart de México. de has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Wal-Mart de México. de does have some risks though, and we've spotted 1 warning sign for Wal-Mart de México. de that you might be interested in.

Wal-Mart de México. de is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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