Be Wary Of Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) And Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Promotora y Operadora de Infraestructura S. A. B. de C. V, this is the formula:

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

0.11 = Mex$7.9b ÷ (Mex$78b - Mex$7.3b) (Based on the trailing twelve months to June 2022).

Therefore, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Promotora y Operadora de Infraestructura S. A. B. de C. V

In the above chart we have measured Promotora y Operadora de Infraestructura S. A. B. de C. V'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 Promotora y Operadora de Infraestructura S. A. B. de C. V.

So How Is Promotora y Operadora de Infraestructura S. A. B. de C. V's ROCE Trending?

When we looked at the ROCE trend at Promotora y Operadora de Infraestructura S. A. B. de C. V, we didn't gain much confidence. To be more specific, ROCE has fallen from 15% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Promotora y Operadora de Infraestructura S. A. B. de C. V 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 19% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

On a final note, we've found 1 warning sign for Promotora y Operadora de Infraestructura S. A. B. de C. V that we think you should be aware of.

While Promotora y Operadora de Infraestructura S. A. B. de C. V may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.