Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Plano & Plano Desenvolvimento Imobiliário is:

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

0.18 = R$247m ÷ (R$1.9b - R$499m) (Based on the trailing twelve months to June 2023).

Therefore, Plano & Plano Desenvolvimento Imobiliário has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 7.7% it's much better.

See 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.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 324% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Plano & Plano Desenvolvimento Imobiliário has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

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

To sum it up, Plano & Plano Desenvolvimento Imobiliário has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 258% return over the last year, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 2 warning signs with Plano & Plano Desenvolvimento Imobiliário (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Plano & Plano Desenvolvimento Imobiliário 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. 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.