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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Grupo Traxión. de (BMV:TRAXIONA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.08 = Mex$1.7b ÷ (Mex$26b - Mex$5.3b) (Based on the trailing twelve months to September 2022).

Therefore, Grupo Traxión. de has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Transportation industry average of 11%.

Our analysis indicates that TRAXION A is potentially undervalued!

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 8.0%. The amount of capital employed has increased too, by 55%. So we're very much inspired by what we're seeing at Grupo Traxión. de thanks to its ability to profitably reinvest capital.

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 investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 66% return over the last five years. 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 potentially serious) , and understanding these would certainly be useful.

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.