Investors Could Be Concerned With Industrias Peñoles. de's (BMV:PE&OLES) Returns On Capital

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. In light of that, when we looked at Industrias Peñoles. de (BMV:PE&OLES) and its ROCE trend, we weren't exactly thrilled.

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 Peñoles. de:

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

0.028 = US$243m ÷ (US$10b - US$1.7b) (Based on the trailing twelve months to March 2023).

Therefore, Industrias Peñoles. de has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 16%.

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 to see what analysts are forecasting going forward, you should check out our free report for Industrias Peñoles. de.

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

When we looked at the ROCE trend at Industrias Peñoles. de, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.8% from 15% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Industrias Peñoles. de is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 25% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing, we've spotted 3 warning signs facing Industrias Peñoles. de that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.