A Look Into Cury Construtora e Incorporadora's (BVMF:CURY3) Impressive Returns On Capital

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Cury Construtora e Incorporadora's (BVMF:CURY3) ROCE trend, we were very happy with what we saw.

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 Cury Construtora e Incorporadora, this is the formula:

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

0.24 = R$355m ÷ (R$2.6b - R$1.1b) (Based on the trailing twelve months to December 2021).

Therefore, Cury Construtora e Incorporadora has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 7.5% earned by companies in a similar industry.

See our latest analysis for Cury Construtora e Incorporadora

In the above chart we have measured Cury Construtora e Incorporadora'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 report on analyst forecasts for the company.

So How Is Cury Construtora e Incorporadora's ROCE Trending?

We'd be pretty happy with returns on capital like Cury Construtora e Incorporadora. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 180% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, Cury Construtora e Incorporadora has a high ratio of current liabilities to total assets of 43%. 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.

The Key Takeaway

In short, we'd argue Cury Construtora e Incorporadora has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. However, despite the favorable fundamentals, the stock has fallen 26% over the last year, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing to note, we've identified 2 warning signs with Cury Construtora e Incorporadora and understanding these should be part of your investment process.

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.

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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.