Returns On Capital At Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) Paint A Concerning Picture
There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) 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)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Loma Negra Compañía Industrial Argentina Sociedad Anónima:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = AR$12b ÷ (AR$94b - AR$16b) (Based on the trailing twelve months to September 2021).
Therefore, Loma Negra Compañía Industrial Argentina Sociedad Anónima has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Basic Materials industry average of 15%.
See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima
Above you can see how the current ROCE for Loma Negra Compañía Industrial Argentina Sociedad Anónima compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Loma Negra Compañía Industrial Argentina Sociedad Anónima here for free.
So How Is Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROCE Trending?
In terms of Loma Negra Compañía Industrial Argentina Sociedad Anónima's historical ROCE movements, the trend isn't fantastic. Around four years ago the returns on capital were 51%, but since then they've fallen to 16%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a related note, Loma Negra Compañía Industrial Argentina Sociedad Anónima has decreased its current liabilities to 17% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
In Conclusion...
To conclude, we've found that Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 46% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
Like most companies, Loma Negra Compañía Industrial Argentina Sociedad Anónima does come with some risks, and we've found 1 warning sign that you should be aware of.
While Loma Negra Compañía Industrial Argentina Sociedad Anónima 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.
