Return Trends At Grupo Gigante S. A. B. de C. V (BMV:GIGANTE) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Grupo Gigante S. A. B. de C. V (BMV:GIGANTE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. 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)

0.068 = Mex$2.9b ÷ (Mex$50b - Mex$8.3b) (Based on the trailing twelve months to September 2023).

So, Grupo Gigante S. A. B. de C. V has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 8.9%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Grupo Gigante S. A. B. de C. V's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Grupo Gigante S. A. B. de C. V, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Grupo Gigante S. A. B. de C. V in recent years. The company has consistently earned 6.8% for the last five years, and the capital employed within the business has risen 22% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Grupo Gigante S. A. B. de C. V's ROCE

In conclusion, Grupo Gigante S. A. B. de C. V has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 19% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 1 warning sign with Grupo Gigante S. A. B. de C. V and understanding it should be part of your investment process.

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.