The Trends At Suzano (BVMF:SUZB3) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Suzano (BVMF:SUZB3), it didn't seem to tick all of these boxes.

What is 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. The formula for this calculation on Suzano is:

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

0.087 = R$8.1b ÷ (R$102b - R$8.2b) (Based on the trailing twelve months to December 2020).

Thus, Suzano has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Forestry industry average of 7.5%.

View our latest analysis for Suzano

Above you can see how the current ROCE for Suzano 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 report for Suzano.

So How Is Suzano's ROCE Trending?

On the surface, the trend of ROCE at Suzano doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 8.7%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Suzano is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 234% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a separate note, we've found 1 warning sign for Suzano you'll probably want to know about.

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