If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 investigating Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA), we don't think it's current trends fit the mold of a multi-bagger.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Loma Negra Compañía Industrial Argentina Sociedad Anónima, this is the formula:

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

0.032 = AR$35b ÷ (AR$1.3t - AR$193b) (Based on the trailing twelve months to September 2024).

Thus, Loma Negra Compañía Industrial Argentina Sociedad Anónima has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 12%.

Check out our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

In the above chart we have measured Loma Negra Compañía Industrial Argentina Sociedad Anónima'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 analyst report for Loma Negra Compañía Industrial Argentina Sociedad Anónima .

What Does the ROCE Trend For Loma Negra Compañía Industrial Argentina Sociedad Anónima Tell Us?

On the surface, the trend of ROCE at Loma Negra Compañía Industrial Argentina Sociedad Anónima doesn't inspire confidence. To be more specific, ROCE has fallen from 24% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

On a related note, Loma Negra Compañía Industrial Argentina Sociedad Anónima has decreased its current liabilities to 15% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. 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.

The Key Takeaway

In summary, we're somewhat concerned by Loma Negra Compañía Industrial Argentina Sociedad Anónima's diminishing returns on increasing amounts of capital. Yet despite these poor fundamentals, the stock has gained a huge 170% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

While Loma Negra Compañía Industrial Argentina Sociedad Anónima doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for LOMA on our platform.

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.