Slowing Rates Of Return At Vibra Energia (BVMF:VBBR3) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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.

Understanding 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)

0.10 = R$3.1b ÷ (R$41b - R$9.6b) (Based on the trailing twelve months to December 2022).

Therefore, Vibra Energia has an ROCE of 10.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 10.0%.

See our latest analysis for Vibra Energia

In the above chart we have measured Vibra Energia's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Vibra Energia's ROCE Trending?

The returns on capital haven't changed much for Vibra Energia in recent years. The company has employed 63% more capital in the last five years, and the returns on that capital have remained stable at 10.0%. 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.

Our Take On Vibra Energia's ROCE

In conclusion, Vibra Energia has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Vibra Energia does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.