Tecnoglass (NYSE:TGLS) Knows How To Allocate Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. And in light of that, the trends we're seeing at Tecnoglass' (NYSE:TGLS) look very promising so lets take a look.

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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 Tecnoglass is:

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

0.30 = US$241m ÷ (US$1.1b - US$329m) (Based on the trailing twelve months to March 2025).

Thus, Tecnoglass has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Building industry average of 14%.

View our latest analysis for Tecnoglass

Above you can see how the current ROCE for Tecnoglass 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 analyst report for Tecnoglass .

So How Is Tecnoglass' ROCE Trending?

Investors would be pleased with what's happening at Tecnoglass. The data shows that returns on capital have increased substantially over the last five years to 30%. Basically the business is earning more per dollar of capital invested and in addition to that, 103% more capital is being employed now too. So we're very much inspired by what we're seeing at Tecnoglass thanks to its ability to profitably reinvest capital.

What We Can Learn From Tecnoglass' ROCE

All in all, it's terrific to see that Tecnoglass is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 1,627% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Tecnoglass can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for TGLS that compares the share price and estimated value.

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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.