Investors Met With Slowing Returns on Capital At Grupo Gigante S. A. B. de C. V (BMV:GIGANTE)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Grupo Gigante S. A. B. de C. V (BMV:GIGANTE), it didn't seem to tick all of these boxes.

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. To calculate this metric for Grupo Gigante S. A. B. de C. V, this is the formula:

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

0.069 = Mex$3.1b ÷ (Mex$54b - Mex$9.5b) (Based on the trailing twelve months to June 2024).

Thus, Grupo Gigante S. A. B. de C. V has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 11%.

Check out our latest analysis for Grupo Gigante S. A. B. de C. V

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Grupo Gigante S. A. B. de C. V has performed in the past in other metrics, you can view this free graph of Grupo Gigante S. A. B. de C. V's past earnings, revenue and cash flow.

What Does the ROCE Trend For Grupo Gigante S. A. B. de C. V Tell Us?

Over the past five years, Grupo Gigante S. A. B. de C. V's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Grupo Gigante S. A. B. de C. V doesn't end up being a multi-bagger in a few years time.

The Bottom Line On Grupo Gigante S. A. B. de C. V's ROCE

In a nutshell, Grupo Gigante S. A. B. de C. V has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 28% in the last five years. Therefore based on the analysis done in this article, we don't think Grupo Gigante S. A. B. de C. V has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with Grupo Gigante S. A. B. de C. V (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Grupo Gigante S. A. B. de C. V 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.