Returns On Capital At Grupo Gigante S. A. B. de C. V (BMV:GIGANTE) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Grupo Gigante S. A. B. de C. V (BMV:GIGANTE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 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$2.8b ÷ (Mex$50b - Mex$9.8b) (Based on the trailing twelve months to June 2023).

Therefore, Grupo Gigante S. A. B. de C. V has an ROCE of 6.9%. Even though it's in line with the industry average of 7.1%, it's still a low return by itself.

Check out 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 past earnings, revenue and cash flow.

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

There hasn't been much to report for Grupo Gigante S. A. B. de C. V's returns and its level of capital employed because both metrics have been steady for the past five years. 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 Key Takeaway

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 37% 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Grupo Gigante S. A. B. de C. V (of which 1 can't be ignored!) that you should know about.

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.