Grupo Sanborns. de (BMV:GSANBORB-1) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we looked at Grupo Sanborns. de (BMV:GSANBORB-1) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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 Sanborns. de:

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

0.067 = Mex$2.6b ÷ (Mex$50b - Mex$11b) (Based on the trailing twelve months to June 2021).

Therefore, Grupo Sanborns. de has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Multiline Retail industry average of 6.2%.

Check out our latest analysis for Grupo Sanborns. de

Above you can see how the current ROCE for Grupo Sanborns. 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 report for Grupo Sanborns. de.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Grupo Sanborns. de doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.7% from 16% five years ago. However it looks like Grupo Sanborns. 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.

In Conclusion...

To conclude, we've found that Grupo Sanborns. de is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 4.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you're still interested in Grupo Sanborns. de it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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.
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