Capital Allocation Trends At Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Aren't Ideal

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Promotora y Operadora de Infraestructura S. A. B. de C. V:

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

0.071 = Mex$5.2b ÷ (Mex$76b - Mex$3.8b) (Based on the trailing twelve months to March 2021).

Thus, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.2%.

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

Above you can see how the current ROCE for Promotora y Operadora de Infraestructura S. A. B. de C. V compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Promotora y Operadora de Infraestructura S. A. B. de C. V here for free.

What The Trend Of ROCE Can Tell Us

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. Over the last five years, returns on capital have decreased to 7.1% from 18% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. 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.

The Key Takeaway

We're a bit apprehensive about Promotora y Operadora de Infraestructura S. A. B. de C. V because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 23% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, Promotora y Operadora de Infraestructura S. A. B. de C. V does come with some risks, and we've found 1 warning sign that you should be aware of.

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