Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) Could Be Struggling To Allocate Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

What Is 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 Loma Negra Compañía Industrial Argentina Sociedad Anónima:

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

0.063 = AR$51b ÷ (AR$974b - AR$169b) (Based on the trailing twelve months to March 2024).

Thus, Loma Negra Compañía Industrial Argentina Sociedad Anónima has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 11%.

See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

roce

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 for free.

The Trend Of ROCE

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 32% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, Loma Negra Compañía Industrial Argentina Sociedad Anónima has done well to pay down its current liabilities to 17% of total assets. So we could link some of this to the decrease in ROCE. 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.

The Bottom Line On Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 10% over the last five years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to continue researching Loma Negra Compañía Industrial Argentina Sociedad Anónima, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Loma Negra Compañía Industrial Argentina Sociedad Anónima 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.