Stock Analysis

Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) Is Doing The Right Things To Multiply Its Share Price

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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Smartfit Escola de Ginástica e Dança is:

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

0.089 = R$962m ÷ (R$13b - R$2.4b) (Based on the trailing twelve months to September 2023).

So, Smartfit Escola de Ginástica e Dança has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Hospitality industry average of 8.4%.

View our latest analysis for Smartfit Escola de Ginástica e Dança

BOVESPA:SMFT3 Return on Capital Employed February 14th 2024

In the above chart we have measured Smartfit Escola de Ginástica e Dança'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 Smartfit Escola de Ginástica e Dança here for free.

So How Is Smartfit Escola de Ginástica e Dança's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.9%. The amount of capital employed has increased too, by 359%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Smartfit Escola de Ginástica e Dança is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 59% return over the last year. In light of that, we think it's worth looking further into this stock because if Smartfit Escola de Ginástica e Dança can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Smartfit Escola de Ginástica e Dança that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Smartfit Escola de Ginástica e Dança is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.