The Returns On Capital At Aleatica. de (BMV:ALEATIC) Don't Inspire Confidence

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Aleatica. de (BMV:ALEATIC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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 Aleatica. de is:

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

0.029 = Mex$9.0b ÷ (Mex$319b - Mex$13b) (Based on the trailing twelve months to June 2024).

Thus, Aleatica. de has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 23%.

See our latest analysis for Aleatica. de

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aleatica. de's ROCE against it's prior returns. If you're interested in investigating Aleatica. de's past further, check out this free graph covering Aleatica. de's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Aleatica. de doesn't inspire confidence. Around five years ago the returns on capital were 5.0%, but since then they've fallen to 2.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Aleatica. de's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Aleatica. de have fallen, meanwhile the business is employing more capital than it was five years ago. Since the stock has skyrocketed 207% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know more about Aleatica. de, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.