If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in América Móvil. de's (BMV:AMXB) returns on capital, so let's have a look.
What Is 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. The formula for this calculation on América Móvil. de is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = Mex$162b ÷ (Mex$1.6t - Mex$558b) (Based on the trailing twelve months to June 2023).
Thus, América Móvil. de has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Wireless Telecom industry average of 9.0% it's much better.
Check out our latest analysis for América Móvil. de
Above you can see how the current ROCE for América Móvil. 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 América Móvil. de.
How Are Returns Trending?
América Móvil. de has not disappointed with their ROCE growth. 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 71% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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.
In Conclusion...
To sum it up, América Móvil. de is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
América Móvil. de does have some risks though, and we've spotted 1 warning sign for América Móvil. de that you might be interested in.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
About BMV:AMX B
América Móvil. de
Provides telecommunications services in Latin America and internationally.
Good value average dividend payer.
