Promotora y Operadora de Infraestructura S. A. B. de C. V's (BMV:PINFRA) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.072 = Mex$5.1b ÷ (Mex$75b - Mex$3.6b) (Based on the trailing twelve months to December 2020).

Therefore, Promotora y Operadora de Infraestructura S. A. B. de C. V has an ROCE of 7.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.2%.

See 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.

How Are Returns 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. Over the last five years, returns on capital have decreased to 7.2% from 18% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. 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.

Our Take On Promotora y Operadora de Infraestructura S. A. B. de C. V's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Promotora y Operadora de Infraestructura S. A. B. de C. V have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 15% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you're still interested in Promotora y Operadora de Infraestructura S. A. B. de C. V it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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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