We Like These Underlying Return On Capital Trends At Grupo Traxión. de (BMV:TRAXIONA)

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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?

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 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$3.7b) (Based on the trailing twelve months to December 2021).

Therefore, 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 9.3%.

Check out 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 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%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 98%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Grupo Traxión. de has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 109% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Grupo Traxión. de can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Grupo Traxión. de that we think you should be aware of.

While Grupo Traxión. de may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.