Why We Like The Returns At Petrobras Distribuidora (BVMF:BRDT3)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Petrobras Distribuidora (BVMF:BRDT3) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Petrobras Distribuidora is:

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

0.24 = R$5.5b ÷ (R$29b - R$5.6b) (Based on the trailing twelve months to June 2021).

So, Petrobras Distribuidora has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 16%.

Check out our latest analysis for Petrobras Distribuidora

Above you can see how the current ROCE for Petrobras Distribuidora 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 Petrobras Distribuidora here for free.

What Can We Tell From Petrobras Distribuidora's ROCE Trend?

Shareholders will be relieved that Petrobras Distribuidora has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 24% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

In summary, we're delighted to see that Petrobras Distribuidora has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 72% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. 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 Petrobras Distribuidora, we've spotted 4 warning signs, and 3 of them shouldn't be ignored.

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.
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