What trends should we look for it we want to identify stocks that can 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Grupo Traxión. de (BMV:TRAXIONA) looks quite promising in regards to its trends of return on capital.
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 Grupo Traxión. de, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = Mex$1.9b ÷ (Mex$22b - Mex$3.5b) (Based on the trailing twelve months to September 2021).
Thus, Grupo Traxión. de has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 9.2%.
Check out our latest analysis for Grupo Traxión. de
In the above chart we have measured Grupo Traxión. de's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Grupo Traxión. de here for free.
What Can We Tell From Grupo Traxión. de's ROCE Trend?
The trends we've noticed at Grupo Traxión. de are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 139% 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.
What We Can Learn From Grupo Traxión. de's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Grupo Traxión. de has. And a remarkable 155% total return over the last three years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Grupo Traxión. de does come with some risks, and we've found 1 warning sign that you should be aware of.
While Grupo Traxión. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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About BMV:TRAXION A
Grupo Traxión. de
Operates as a mobility and logistics company in Mexico.
Solid track record with reasonable growth potential.
