Will The ROCE Trend At Industrias CH S. A. B. de C. V (BMV:ICHB) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Industrias CH S. A. B. de C. V's (BMV:ICHB) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Industrias CH S. A. B. de C. V:

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

0.13 = Mex$5.9b ÷ (Mex$54b - Mex$7.4b) (Based on the trailing twelve months to December 2020).

Therefore, Industrias CH S. A. B. de C. V has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 12%.

See our latest analysis for Industrias CH S. A. B. de C. V

In the above chart we have measured Industrias CH S. A. B. de C. V'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 Industrias CH S. A. B. de C. V here for free.

How Are Returns Trending?

We're delighted to see that Industrias CH S. A. B. de C. V is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. And unsurprisingly, like most companies trying to break into the black, Industrias CH S. A. B. de C. V is utilizing 39% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In Conclusion...

To the delight of most shareholders, Industrias CH S. A. B. de C. V has now broken into profitability. Since the stock has returned a staggering 122% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Industrias CH S. A. B. de C. V does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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