Stock Analysis

Priner Serviços Industriais (BVMF:PRNR3) Is Very Good At Capital Allocation

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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Priner Serviços Industriais' (BVMF:PRNR3) returns on capital, so let's have a look.

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 Priner Serviços Industriais:

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

0.22 = R$85m ÷ (R$598m - R$203m) (Based on the trailing twelve months to September 2022).

So, Priner Serviços Industriais has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 12%.

View our latest analysis for Priner Serviços Industriais

BOVESPA:PRNR3 Return on Capital Employed March 18th 2023

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

The Trend Of ROCE

Investors would be pleased with what's happening at Priner Serviços Industriais. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 306%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Priner Serviços Industriais' ROCE

All in all, it's terrific to see that Priner Serviços Industriais is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 31% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Priner Serviços Industriais, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Priner Serviços Industriais is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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