Be Wary Of Sitios Latinoamérica. de (BMV:LASITEB-1) And Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Sitios Latinoamérica. de (BMV:LASITEB-1) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Sitios Latinoamérica. de, this is the formula:

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

0.045 = Mex$4.2b ÷ (Mex$102b - Mex$8.4b) (Based on the trailing twelve months to March 2024).

Therefore, Sitios Latinoamérica. de has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Telecom industry average of 7.0%.

See our latest analysis for Sitios Latinoamérica. de

Above you can see how the current ROCE for Sitios Latinoamérica. 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 analyst report for Sitios Latinoamérica. de .

The Trend Of ROCE

In terms of Sitios Latinoamérica. de's historical ROCE movements, the trend isn't fantastic. Around two years ago the returns on capital were 6.2%, but since then they've fallen to 4.5%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Sitios Latinoamérica. de has done well to pay down its current liabilities to 8.3% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

To conclude, we've found that Sitios Latinoamérica. de is reinvesting in the business, but returns have been falling. Since the stock has declined 37% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Sitios Latinoamérica. de has the makings of a multi-bagger.

Sitios Latinoamérica. de could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for LASITE B-1 on our platform quite valuable.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.