Vamos Locação de Caminhões Máquinas e Equipamentos' (BVMF:VAMO3) Returns Have Hit A Wall

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Vamos Locação de Caminhões Máquinas e Equipamentos (BVMF:VAMO3), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. Analysts use this formula to calculate it for Vamos Locação de Caminhões Máquinas e Equipamentos:

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

0.10 = R$918m ÷ (R$11b - R$1.7b) (Based on the trailing twelve months to March 2022).

Thus, Vamos Locação de Caminhões Máquinas e Equipamentos has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Transportation industry average of 12%.

Check out our latest analysis for Vamos Locação de Caminhões Máquinas e Equipamentos

In the above chart we have measured Vamos Locação de Caminhões Máquinas e Equipamentos' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vamos Locação de Caminhões Máquinas e Equipamentos.

What Can We Tell From Vamos Locação de Caminhões Máquinas e Equipamentos' ROCE Trend?

In terms of Vamos Locação de Caminhões Máquinas e Equipamentos' historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 10.0% for the last four years, and the capital employed within the business has risen 530% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Vamos Locação de Caminhões Máquinas e Equipamentos has done well to reduce current liabilities to 15% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Key Takeaway

Long story short, while Vamos Locação de Caminhões Máquinas e Equipamentos has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 26% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Vamos Locação de Caminhões Máquinas e Equipamentos does have some risks, we noticed 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

While Vamos Locação de Caminhões Máquinas e Equipamentos may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.