Hidrovias do Brasil (BVMF:HBSA3) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Hidrovias do Brasil (BVMF:HBSA3) so let's look a bit deeper.

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 Hidrovias do Brasil is:

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

0.083 = R$485m ÷ (R$6.4b - R$573m) (Based on the trailing twelve months to September 2023).

So, Hidrovias do Brasil has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Shipping industry average of 8.7%.

See our latest analysis for Hidrovias do Brasil

In the above chart we have measured Hidrovias do Brasil's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hidrovias do Brasil here for free.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.3%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 35%. So we're very much inspired by what we're seeing at Hidrovias do Brasil thanks to its ability to profitably reinvest capital.

The Bottom Line On Hidrovias do Brasil's ROCE

To sum it up, Hidrovias do Brasil has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 44% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Hidrovias do Brasil we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Hidrovias do Brasil 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.