Returns On Capital At Corporación América Airports (NYSE:CAAP) Have Stalled
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Corporación América Airports (NYSE:CAAP) and its ROCE trend, we weren't exactly thrilled.
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. Analysts use this formula to calculate it for Corporación América Airports:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$341m ÷ (US$3.9b - US$629m) (Based on the trailing twelve months to March 2023).
Therefore, Corporación América Airports has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Infrastructure industry average of 8.1% it's much better.
View our latest analysis for Corporación América Airports
In the above chart we have measured Corporación América Airports' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Corporación América Airports.
What The Trend Of ROCE Can Tell Us
Over the past five years, Corporación América Airports' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Corporación América Airports to be a multi-bagger going forward. This probably explains why Corporación América Airports is paying out 33% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Bottom Line
We can conclude that in regards to Corporación América Airports' returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 43% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
Corporación América Airports does have some risks though, and we've spotted 1 warning sign for Corporación América Airports that you might be interested in.
While Corporación América Airports 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.
