Slowing Rates Of Return At Grupo Bimbo. de (BMV:BIMBOA) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Grupo Bimbo. de's (BMV:BIMBOA) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Grupo Bimbo. de, this is the formula:

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

0.14 = Mex$33b ÷ (Mex$316b - Mex$78b) (Based on the trailing twelve months to March 2021).

Thus, Grupo Bimbo. de has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Food industry.

View our latest analysis for Grupo Bimbo. de

Above you can see how the current ROCE for Grupo Bimbo. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 47% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Grupo Bimbo. 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.

The Bottom Line

To sum it up, Grupo Bimbo. de has simply been reinvesting capital steadily, at those decent rates of return. However, despite the favorable fundamentals, the stock has fallen 16% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we've found 2 warning signs for Grupo Bimbo. de that we think you should be aware of.

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This article by Simply Wall St is general in nature. 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.
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