Promotora y Operadora de Infraestructura S. A. B. de C. V (BMV:PINFRA) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. 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.

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. 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)

0.099 = Mex$7.2b ÷ (Mex$77b - Mex$3.9b) (Based on the trailing twelve months to December 2021).

So, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 11%.

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.

The Trend Of ROCE

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 9.9% from 15% 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

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

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Promotora y Operadora de Infraestructura S. A. B. de C. V. These growth trends haven't led to growth returns though, since the stock has fallen 15% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing, we've spotted 1 warning sign facing Promotora y Operadora de Infraestructura S. A. B. de C. V that you might find interesting.

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.