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

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Smartfit Escola de Ginástica e Dança (BVMF:SMFT3) looks quite promising in regards to its trends of return on capital.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.075 = R$1.0b ÷ (R$16b - R$2.3b) (Based on the trailing twelve months to June 2024).

Thus, Smartfit Escola de Ginástica e Dança has an ROCE of 7.5%. On its own, that's a low figure but it's around the 7.9% average generated by the Hospitality industry.

View 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Smartfit Escola de Ginástica e Dança .

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. The data shows that returns on capital have increased substantially over the last five years to 7.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 190%. So we're very much inspired by what we're seeing at Smartfit Escola de Ginástica e Dança thanks to its ability to profitably reinvest capital.

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 given the stock has remained rather flat over the last three years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Smartfit Escola de Ginástica e Dança does come with some risks, and we've found 1 warning sign that you should be aware of.

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.