Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) Could Become A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Plano & Plano Desenvolvimento Imobiliário, this is the formula:

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

0.21 = R$296m ÷ (R$2.0b - R$573m) (Based on the trailing twelve months to September 2023).

Therefore, Plano & Plano Desenvolvimento Imobiliário has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 6.3%.

Check out our latest analysis for Plano & Plano Desenvolvimento Imobiliário

Above you can see how the current ROCE for Plano & Plano Desenvolvimento Imobiliário compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Plano & Plano Desenvolvimento Imobiliário here for free.

What Can We Tell From Plano & Plano Desenvolvimento Imobiliário's ROCE Trend?

We like the trends that we're seeing from Plano & Plano Desenvolvimento Imobiliário. Over the last five years, returns on capital employed have risen substantially to 21%. 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 274%. So we're very much inspired by what we're seeing at Plano & Plano Desenvolvimento Imobiliário thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 29% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Plano & Plano Desenvolvimento Imobiliário's ROCE

In summary, it's great to see that Plano & Plano Desenvolvimento Imobiliário can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 99% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for Plano & Plano Desenvolvimento Imobiliário you'll probably want to know about.

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.

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.