Operadora de Sites Mexicanos. de (BMV:SITES1A-1) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Operadora de Sites Mexicanos. de's (BMV:SITES1A-1) returns on capital, so let's have a 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 Operadora de Sites Mexicanos. de, this is the formula:

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

0.041 = Mex$4.2b ÷ (Mex$104b - Mex$1.8b) (Based on the trailing twelve months to December 2022).

So, Operadora de Sites Mexicanos. de has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 5.9%.

Check out 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, you can check out the forecasts from the analysts covering Operadora de Sites Mexicanos. de here for free.

So How Is Operadora de Sites Mexicanos. de's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 4.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 139% more capital is being employed now too. 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.

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

To sum it up, Operadora de Sites Mexicanos. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 27% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 1 warning sign facing Operadora de Sites Mexicanos. de that you might find interesting.

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.