We Think Companhia Siderúrgica Nacional (BVMF:CSNA3) Might Have The DNA Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of Companhia Siderúrgica Nacional (BVMF:CSNA3) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Companhia Siderúrgica Nacional:

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

0.33 = R$18b ÷ (R$76b - R$22b) (Based on the trailing twelve months to September 2021).

Thus, Companhia Siderúrgica Nacional has an ROCE of 33%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for Companhia Siderúrgica Nacional

Above you can see how the current ROCE for Companhia Siderúrgica Nacional 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 Companhia Siderúrgica Nacional here for free.

How Are Returns Trending?

Companhia Siderúrgica Nacional is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 33%. The amount of capital employed has increased too, by 38%. So we're very much inspired by what we're seeing at Companhia Siderúrgica Nacional thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 29% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Companhia Siderúrgica Nacional's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Companhia Siderúrgica Nacional has. Since the stock has returned a staggering 157% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know more about Companhia Siderúrgica Nacional, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.

Companhia Siderúrgica Nacional is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.