The Trends At Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) That You Should Know About

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. Having said that, from a first glance at Cyrela Brazil Realty Empreendimentos e Participações (BVMF:CYRE3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Cyrela Brazil Realty Empreendimentos e Participações, this is the formula:

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

0.054 = R$522m ÷ (R$11b - R$1.8b) (Based on the trailing twelve months to September 2020).

So, Cyrela Brazil Realty Empreendimentos e Participações has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.2%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Things have been pretty stable at Cyrela Brazil Realty Empreendimentos e Participações, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Cyrela Brazil Realty Empreendimentos e Participações in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Cyrela Brazil Realty Empreendimentos e Participações has been paying out 73% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line

We can conclude that in regards to Cyrela Brazil Realty Empreendimentos e Participações' returns on capital employed and the trends, there isn't much change to report on. Yet to long term shareholders the stock has gifted them an incredible 345% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Cyrela Brazil Realty Empreendimentos e Participações does have some risks though, and we've spotted 1 warning sign for Cyrela Brazil Realty Empreendimentos e Participações that you might be interested in.

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.

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This article by Simply Wall St is general in nature. 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.
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