El Puerto de Liverpool. de (BMV:LIVEPOLC-1) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, El Puerto de Liverpool. de (BMV:LIVEPOLC-1) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 El Puerto de Liverpool. de, this is the formula:

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

0.14 = Mex$24b ÷ (Mex$218b - Mex$44b) (Based on the trailing twelve months to September 2022).

Therefore, El Puerto de Liverpool. de has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 5.3% it's much better.

See our latest analysis for El Puerto de Liverpool. de

Above you can see how the current ROCE for El Puerto de Liverpool. de compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For El Puerto de Liverpool. de Tell Us?

We like the trends that we're seeing from El Puerto de Liverpool. de. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 39%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On El Puerto de Liverpool. de's ROCE

In summary, it's great to see that El Puerto de Liverpool. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

While El Puerto de Liverpool. de looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LIVEPOL C-1 is currently trading for a fair price.

While El Puerto de Liverpool. de 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.