There Are Reasons To Feel Uneasy About Industrias Peñoles. de's (BMV:PE&OLES) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Industrias Peñoles. de (BMV:PE&OLES) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. To calculate this metric for Industrias Peñoles. de, this is the formula:

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

0.013 = US$118m ÷ (US$10.0b - US$1.1b) (Based on the trailing twelve months to December 2023).

Therefore, Industrias Peñoles. de has an ROCE of 1.3%. 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Industrias Peñoles. de .

The Trend Of ROCE

On the surface, the trend of ROCE at Industrias Peñoles. de doesn't inspire confidence. To be more specific, ROCE has fallen from 9.4% over the last five years. However it looks like Industrias Peñoles. de might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Industrias Peñoles. de's ROCE

To conclude, we've found that Industrias Peñoles. de is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 42% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Industrias Peñoles. de (of which 1 is significant!) that you should know about.

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.