Shareholders Are Optimistic That Vittia (BVMF:VITT3) Will Multiply In Value

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Vittia (BVMF:VITT3), we liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Vittia, this is the formula:

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

0.25 = R$175m ÷ (R$961m - R$264m) (Based on the trailing twelve months to March 2023).

Therefore, Vittia has an ROCE of 25%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Check out our latest analysis for Vittia

In the above chart we have measured Vittia's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vittia.

How Are Returns Trending?

Vittia deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 266% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Vittia has done well to reduce current liabilities to 27% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Vittia's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has followed suit returning a meaningful 44% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Vittia that you might find interesting.

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.