Stock Analysis

Positivo Tecnologia (BVMF:POSI3) Is Investing Its Capital With Increasing Efficiency

Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Positivo Tecnologia (BVMF:POSI3) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Positivo Tecnologia, this is the formula:

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

0.22 = R$489m ÷ (R$4.3b - R$2.1b) (Based on the trailing twelve months to September 2022).

Thus, Positivo Tecnologia has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Tech industry average of 9.3%.

See our latest analysis for Positivo Tecnologia

BOVESPA:POSI3 Return on Capital Employed March 15th 2023

In the above chart we have measured Positivo Tecnologia'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.

The Trend Of ROCE

We like the trends that we're seeing from Positivo Tecnologia. The data shows that returns on capital have increased substantially over the last five years to 22%. The amount of capital employed has increased too, by 210%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 49%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Positivo Tecnologia has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

What We Can Learn From Positivo Tecnologia's ROCE

All in all, it's terrific to see that Positivo Tecnologia is reaping the rewards from prior investments and is growing its capital base. And a remarkable 103% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 5 warning signs with Positivo Tecnologia (at least 2 which don't sit too well with us) , and understanding these would certainly be useful.

Positivo Tecnologia is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether Positivo Tecnologia is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis