Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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 Plano & Plano Desenvolvimento Imobiliário, this is the formula:

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

0.16 = R$165m ÷ (R$1.3b - R$239m) (Based on the trailing twelve months to December 2021).

So, Plano & Plano Desenvolvimento Imobiliário has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 7.5% it's much better.

See our latest analysis for Plano & Plano Desenvolvimento Imobiliário

In the above chart we have measured Plano & Plano Desenvolvimento Imobiliário's 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 Plano & Plano Desenvolvimento Imobiliário here for free.

So How Is Plano & Plano Desenvolvimento Imobiliário's ROCE Trending?

On the surface, the trend of ROCE at Plano & Plano Desenvolvimento Imobiliário doesn't inspire confidence. Over the last four years, returns on capital have decreased to 16% from 22% four years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Plano & Plano Desenvolvimento Imobiliário's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Plano & Plano Desenvolvimento Imobiliário. And there could be an opportunity here if other metrics look good too, because the stock has declined 50% in the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One final note, you should learn about the 2 warning signs we've spotted with Plano & Plano Desenvolvimento Imobiliário (including 1 which is a bit unpleasant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.