Investors Met With Slowing Returns on Capital At Controladora Vuela Compañía de Aviación. de (BMV:VOLARA)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Controladora Vuela Compañía de Aviación. de (BMV:VOLARA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Controladora Vuela Compañía de Aviación. de:

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

0.008 = US$24m ÷ (US$4.7b - US$1.6b) (Based on the trailing twelve months to March 2023).

Thus, Controladora Vuela Compañía de Aviación. de has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Airlines industry average of 8.0%.

See our latest analysis for Controladora Vuela Compañía de Aviación. de

In the above chart we have measured Controladora Vuela Compañía de Aviación. de's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Controladora Vuela Compañía de Aviación. de Tell Us?

There are better returns on capital out there than what we're seeing at Controladora Vuela Compañía de Aviación. de. The company has employed 380% more capital in the last five years, and the returns on that capital have remained stable at 0.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Controladora Vuela Compañía de Aviación. de has done well to reduce current liabilities to 35% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

In conclusion, Controladora Vuela Compañía de Aviación. de has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 93% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, Controladora Vuela Compañía de Aviación. de does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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.