Industrias Peñoles. de (BMV:PE&OLES) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Industrias Peñoles. de (BMV:PE&OLES) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Industrias Peñoles. de is:

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

0.025 = US$220m ÷ (US$10b - US$1.2b) (Based on the trailing twelve months to June 2024).

Thus, Industrias Peñoles. de has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 12%.

View our latest analysis for Industrias Peñoles. de

Above you can see how the current ROCE for Industrias Peñoles. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Industrias Peñoles. de for free.

What Does the ROCE Trend For Industrias Peñoles. de Tell Us?

The returns on capital haven't changed much for Industrias Peñoles. de in recent years. Over the past five years, ROCE has remained relatively flat at around 2.5% and the business has deployed 24% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Industrias Peñoles. de has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 29% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to continue researching Industrias Peñoles. de, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Industrias Peñoles. 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.