There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Alsea. de's (BMV:ALSEA) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Alsea. de, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = Mex$6.5b ÷ (Mex$77b - Mex$20b) (Based on the trailing twelve months to March 2023).
Thus, Alsea. de has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 6.4% it's much better.
See our latest analysis for Alsea. de
In the above chart we have measured Alsea. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alsea. de here for free.
SWOT Analysis for Alsea. de
- Earnings growth over the past year exceeded the industry.
- Debt is well covered by cash flow.
- Earnings growth over the past year is below its 5-year average.
- Interest payments on debt are not well covered.
- Annual earnings are forecast to grow faster than the Mexican market.
- Good value based on P/E ratio compared to estimated Fair P/E ratio.
- Revenue is forecast to grow slower than 20% per year.
So How Is Alsea. de's ROCE Trending?
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 110% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Alsea. de has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Alsea. de's ROCE
In the end, Alsea. de has proven its ability to adequately reinvest capital at good rates of return. Yet over the last five years the stock has declined 23%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One more thing, we've spotted 1 warning sign facing Alsea. de that you might find interesting.
While Alsea. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
About BMV:ALSEA *
High growth potential with solid track record and pays a dividend.
