Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Might Be Having Difficulty Using Its Capital Effectively

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) and its ROCE trend, we weren't exactly thrilled.

What is 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)

0.086 = Mex$6.1b ÷ (Mex$77b - Mex$5.7b) (Based on the trailing twelve months to June 2021).

Therefore, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 8.1%.

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.

The Trend Of ROCE

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 8.6% from 17% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Promotora y Operadora de Infraestructura S. A. B. de C. V's ROCE

To conclude, we've found that Promotora y Operadora de Infraestructura S. A. B. de C. V is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 20% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck 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.

While Promotora y Operadora de Infraestructura S. A. B. de C. V isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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