Returns On Capital At Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Plano & Plano Desenvolvimento Imobiliário (BVMF:PLPL3), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Plano & Plano Desenvolvimento Imobiliário:

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

0.14 = R$170m ÷ (R$1.6b - R$423m) (Based on the trailing twelve months to December 2022).

Thus, Plano & Plano Desenvolvimento Imobiliário has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Consumer Durables industry.

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.

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

When we looked at the ROCE trend at Plano & Plano Desenvolvimento Imobiliário, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 14% from 22% five 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. If these investments prove successful, this can bode very well for long term stock performance.

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 the stock has done incredibly well with a 139% return over the last year, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Plano & Plano Desenvolvimento Imobiliário does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.