Be Wary Of Operadora de Sites Mexicanos. de (BMV:SITES1A-1) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Operadora de Sites Mexicanos. de (BMV:SITES1A-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)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Operadora de Sites Mexicanos. de:

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

0.045 = Mex$4.6b ÷ (Mex$103b - Mex$1.4b) (Based on the trailing twelve months to September 2023).

Thus, Operadora de Sites Mexicanos. de has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Telecom industry average of 6.2%.

See our latest analysis for Operadora de Sites Mexicanos. de

In the above chart we have measured Operadora de Sites Mexicanos. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Operadora de Sites Mexicanos. de.

What Can We Tell From Operadora de Sites Mexicanos. de's ROCE Trend?

On the surface, the trend of ROCE at Operadora de Sites Mexicanos. de doesn't inspire confidence. To be more specific, ROCE has fallen from 5.9% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Operadora de Sites Mexicanos. de's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Operadora de Sites Mexicanos. de is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 11% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 2 warning signs with Operadora de Sites Mexicanos. de (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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.