SIMPAR (BVMF:SIMH3) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at SIMPAR (BVMF:SIMH3) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for SIMPAR, this is the formula:

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

0.11 = R$5.3b ÷ (R$60b - R$9.6b) (Based on the trailing twelve months to June 2023).

Thus, SIMPAR has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 12%.

See our latest analysis for SIMPAR

Above you can see how the current ROCE for SIMPAR compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SIMPAR.

So How Is SIMPAR's ROCE Trending?

SIMPAR is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 367% more capital is being employed now too. So we're very much inspired by what we're seeing at SIMPAR thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that SIMPAR can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 20% to shareholders. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 3 warning signs we've spotted with SIMPAR (including 1 which is a bit concerning) .

While SIMPAR 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.