Returns Are Gaining Momentum At Grupo Gigante S. A. B. de C. V (BMV:GIGANTE)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Grupo Gigante S. A. B. de C. V's (BMV:GIGANTE) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Grupo Gigante S. A. B. de C. V:

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

0.091 = Mex$4.0b ÷ (Mex$52b - Mex$8.0b) (Based on the trailing twelve months to March 2024).

So, Grupo Gigante S. A. B. de C. V has an ROCE of 9.1%. Even though it's in line with the industry average of 9.3%, it's still a low return by itself.

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'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?

Grupo Gigante S. A. B. de C. V is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 45% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Grupo Gigante S. A. B. de C. V's ROCE

To sum it up, Grupo Gigante S. A. B. de C. V is collecting higher returns from the same amount of capital, and that's impressive. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Grupo Gigante S. A. B. de C. V, we've discovered 1 warning sign that you should be aware of.

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