Odontoprev (BVMF:ODPV3) Is Aiming To Keep Up Its Impressive Returns

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Odontoprev's (BVMF:ODPV3) ROCE trend, we were very happy with what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Odontoprev, this is the formula:

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

0.50 = R$785m ÷ (R$2.1b - R$495m) (Based on the trailing twelve months to September 2023).

So, Odontoprev has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

View our latest analysis for Odontoprev

In the above chart we have measured Odontoprev's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Odontoprev's ROCE Trend?

It's hard not to be impressed by Odontoprev's returns on capital. The company has consistently earned 50% for the last five years, and the capital employed within the business has risen 43% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Odontoprev can keep this up, we'd be very optimistic about its future.

The Bottom Line

In summary, we're delighted to see that Odontoprev has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And given the stock has only risen 10% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Odontoprev is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you want to continue researching Odontoprev, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.