Grupo Mateus (BVMF:GMAT3) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Grupo Mateus' (BVMF:GMAT3) ROCE trend, we were pretty happy with what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Grupo Mateus is:

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

0.15 = R$1.8b ÷ (R$17b - R$4.7b) (Based on the trailing twelve months to June 2024).

Therefore, Grupo Mateus has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Consumer Retailing industry.

View our latest analysis for Grupo Mateus

Above you can see how the current ROCE for Grupo Mateus compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Grupo Mateus .

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 359% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Key Takeaway

In the end, Grupo Mateus has proven its ability to adequately reinvest capital at good rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last three years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Grupo Mateus could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for GMAT3 on our platform quite valuable.

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.