We Like These Underlying Trends At Convertidora Industrial. de (BMV:CONVERA)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Convertidora Industrial. de (BMV:CONVERA) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Convertidora Industrial. de is:

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

0.15 = Mex$163m ÷ (Mex$1.9b - Mex$857m) (Based on the trailing twelve months to September 2020).

So, Convertidora Industrial. de has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Packaging industry.

View our latest analysis for Convertidora Industrial. de

In the above chart we have measured Convertidora Industrial. 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 Convertidora Industrial. de here for free.

What Can We Tell From Convertidora Industrial. de's ROCE Trend?

Convertidora Industrial. de's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 160% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a side note, Convertidora Industrial. de's current liabilities are still rather high at 44% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, we're delighted to see that Convertidora Industrial. de has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 31% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Convertidora Industrial. de does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are potentially serious...

While Convertidora Industrial. 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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