São Paulo Turismo (BVMF:AHEB3) Could Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of São Paulo Turismo (BVMF:AHEB3) looks great, so lets see what the trend 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 São Paulo Turismo is:

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

0.37 = R$138m ÷ (R$513m - R$139m) (Based on the trailing twelve months to March 2024).

So, São Paulo Turismo has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 8.9%.

Check out our latest analysis for São Paulo Turismo

Historical performance is a great place to start when researching a stock so above you can see the gauge for São Paulo Turismo's ROCE against it's prior returns. If you'd like to look at how São Paulo Turismo has performed in the past in other metrics, you can view this free graph of São Paulo Turismo's past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that São Paulo Turismo is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 37% which is a sight for sore eyes. Not only that, but the company is utilizing 87% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

To the delight of most shareholders, São Paulo Turismo has now broken into profitability. And since the stock has fallen 19% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

São Paulo Turismo does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

São Paulo Turismo is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com