Santos Brasil Participações (BVMF:STBP3) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Santos Brasil Participações (BVMF:STBP3) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Santos Brasil Participações:

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

0.14 = R$561m ÷ (R$4.6b - R$646m) (Based on the trailing twelve months to September 2023).

So, Santos Brasil Participações has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Infrastructure industry average of 12%.

View our latest analysis for Santos Brasil Participações

Above you can see how the current ROCE for Santos Brasil Participações 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 Santos Brasil Participações.

What Can We Tell From Santos Brasil Participações' ROCE Trend?

Investors would be pleased with what's happening at Santos Brasil Participações. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 53%. So we're very much inspired by what we're seeing at Santos Brasil Participações thanks to its ability to profitably reinvest capital.

What We Can Learn From Santos Brasil Participações' ROCE

All in all, it's terrific to see that Santos Brasil Participações is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 159% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Santos Brasil Participações can keep these trends up, it could have a bright future ahead.

If you want to continue researching Santos Brasil Participações, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Santos Brasil Participações 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.