Grupo Traxión. de (BMV:TRAXIONA) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Grupo Traxión. de's (BMV:TRAXIONA) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Grupo Traxión. de is:

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

0.10 = Mex$1.8b ÷ (Mex$22b - Mex$3.8b) (Based on the trailing twelve months to March 2021).

Therefore, Grupo Traxión. de has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 8.0% it's much better.

See our latest analysis for Grupo Traxión. de

Above you can see how the current ROCE for Grupo Traxión. de 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 Grupo Traxión. de.

What Does the ROCE Trend For Grupo Traxión. de Tell Us?

The trends we've noticed at Grupo Traxión. de are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 321% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Grupo Traxión. de's ROCE

In summary, it's great to see that Grupo Traxión. de can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last three years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Grupo Traxión. de (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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