If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Cydsa. de (BMV:CYDSASAA) and its ROCE trend, we weren't exactly thrilled.
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. Analysts use this formula to calculate it for Cydsa. de:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = Mex$2.3b ÷ (Mex$30b - Mex$3.9b) (Based on the trailing twelve months to September 2022).
So, Cydsa. de has an ROCE of 8.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 20%.
Check out our latest analysis for Cydsa. de
Above you can see how the current ROCE for Cydsa. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Cydsa. de.
What Can We Tell From Cydsa. de's ROCE Trend?
The returns on capital haven't changed much for Cydsa. de in recent years. The company has consistently earned 8.7% for the last five years, and the capital employed within the business has risen 54% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line On Cydsa. de's ROCE
Long story short, while Cydsa. de has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 38% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
Cydsa. de does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.
While Cydsa. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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:CYDSASA A
Cydsa. de
Together its subsidiaries, produces and markets salt, chlorine, caustic soda, and refrigerant gases in Mexico, the United States, Canada, Central and South America, Asia, and Europe.
Undervalued with reasonable growth potential and pays a dividend.
