Return Trends At Alliança Saúde e Participações (BVMF:AALR3) Aren't Appealing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Alliança Saúde e Participações (BVMF:AALR3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've discovered 3 warning signs about Alliança Saúde e Participações. View them for free.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Alliança Saúde e Participações, this is the formula:

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

0.051 = R$113m ÷ (R$2.9b - R$666m) (Based on the trailing twelve months to December 2024).

So, Alliança Saúde e Participações has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Healthcare industry average of 11%.

View our latest analysis for Alliança Saúde e Participações

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

What The Trend Of ROCE Can Tell Us

Over the past five years, Alliança Saúde e Participações' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Alliança Saúde e Participações to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Alliança Saúde e Participações' returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 43% in the last five years. Therefore based on the analysis done in this article, we don't think Alliança Saúde e Participações has the makings of a multi-bagger.

Like most companies, Alliança Saúde e Participações does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

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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.