Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) and its trend of ROCE, we really liked what we saw.

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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. Analysts use this formula to calculate it for Smartfit Escola de Ginástica e Dança:

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

0.094 = R$1.5b ÷ (R$18b - R$2.7b) (Based on the trailing twelve months to June 2025).

So, Smartfit Escola de Ginástica e Dança has an ROCE of 9.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.0%.

Check out our latest analysis for Smartfit Escola de Ginástica e Dança

Above you can see how the current ROCE for Smartfit Escola de Ginástica e Dança 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 Smartfit Escola de Ginástica e Dança for free.

What Does the ROCE Trend For Smartfit Escola de Ginástica e Dança Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.4%. The amount of capital employed has increased too, by 132%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Smartfit Escola de Ginástica e Dança has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 51% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with Smartfit Escola de Ginástica e Dança (at least 1 which is significant) , and understanding them would certainly be useful.

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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.