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

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA), it didn't seem to tick all of these boxes.

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

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$7.7b ÷ (Mex$77b - Mex$6.8b) (Based on the trailing twelve months to September 2022).

Thus, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Infrastructure industry average of 12%.

Check out 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 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.

What Does the ROCE Trend For Promotora y Operadora de Infraestructura S. A. B. de C. V Tell Us?

In terms of Promotora y Operadora de Infraestructura S. A. B. de C. V's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 11% from 14% five years ago. 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.

In Conclusion...

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. In light of this, the stock has only gained 2.5% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

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.

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.