Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Cyrela Brazil Realty Empreendimentos e Participações' (BVMF:CYRE3) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Cyrela Brazil Realty Empreendimentos e Participações:

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

0.071 = R$737m ÷ (R$12b - R$1.9b) (Based on the trailing twelve months to June 2021).

Thus, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 7.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 10%.

Check out our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

In the above chart we have measured Cyrela Brazil Realty Empreendimentos e Participações' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Cyrela Brazil Realty Empreendimentos e Participações here for free.

What Does the ROCE Trend For Cyrela Brazil Realty Empreendimentos e Participações Tell Us?

Cyrela Brazil Realty Empreendimentos e Participações is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 76% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Cyrela Brazil Realty Empreendimentos e Participações' ROCE

To bring it all together, Cyrela Brazil Realty Empreendimentos e Participações has done well to increase the returns it's generating from its capital employed. And a remarkable 149% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 3 warning signs for Cyrela Brazil Realty Empreendimentos e Participações you'll probably want to know about.

While Cyrela Brazil Realty Empreendimentos e Participações isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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