Returns On Capital At Vibra Energia (BVMF:VBBR3) Have Stalled

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Vibra Energia (BVMF:VBBR3) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Vibra Energia is:

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

0.095 = R$3.0b ÷ (R$40b - R$8.4b) (Based on the trailing twelve months to March 2023).

Therefore, Vibra Energia has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Specialty Retail industry average of 8.2%.

See our latest analysis for Vibra Energia

Above you can see how the current ROCE for Vibra Energia 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 Vibra Energia here for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Vibra Energia. Over the past five years, ROCE has remained relatively flat at around 9.5% and the business has deployed 67% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In summary, Vibra Energia has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 15% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to continue researching Vibra Energia, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Vibra Energia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.