Plascar Participações Industriais (BVMF:PLAS3) Could Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Plascar Participações Industriais (BVMF:PLAS3) looks great, so lets see what the trend can tell us.

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

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. To calculate this metric for Plascar Participações Industriais, this is the formula:

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

0.24 = R$59m ÷ (R$659m - R$419m) (Based on the trailing twelve months to June 2023).

So, Plascar Participações Industriais has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 7.8%.

View our latest analysis for Plascar Participações Industriais

Historical performance is a great place to start when researching a stock so above you can see the gauge for Plascar Participações Industriais' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Plascar Participações Industriais, check out these free graphs here.

So How Is Plascar Participações Industriais' ROCE Trending?

The fact that Plascar Participações Industriais is now generating some pre-tax profits from its prior investments is very encouraging. About four years ago the company was generating losses but things have turned around because it's now earning 24% on its capital. And unsurprisingly, like most companies trying to break into the black, Plascar Participações Industriais is utilizing 42% more capital than it was four years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Another thing to note, Plascar Participações Industriais has a high ratio of current liabilities to total assets of 64%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, it's great to see that Plascar Participações Industriais has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 42% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Plascar Participações Industriais, we've spotted 5 warning signs, and 3 of them are significant.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.