We Like Priner Serviços Industriais' (BVMF:PRNR3) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Priner Serviços Industriais (BVMF:PRNR3) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

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. 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).

Thus, Priner Serviços Industriais has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Our analysis indicates that PRNR3 is potentially undervalued!

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're interested in investigating Priner Serviços Industriais' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Priner Serviços Industriais Tell Us?

The trends we've noticed at Priner Serviços Industriais are quite reassuring. 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%. So we're very much inspired by what we're seeing at Priner Serviços Industriais thanks to its ability to profitably reinvest capital.

The Bottom Line On Priner Serviços Industriais' ROCE

To sum it up, Priner Serviços Industriais has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 17% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Priner Serviços Industriais, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.