Alupar Investimento (BVMF:ALUP11) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Alupar Investimento (BVMF:ALUP11) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Alupar Investimento is:

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

0.18 = R$3.7b ÷ (R$24b - R$2.4b) (Based on the trailing twelve months to March 2021).

Thus, Alupar Investimento has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Electric Utilities industry.

View our latest analysis for Alupar Investimento

Above you can see how the current ROCE for Alupar Investimento compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Alupar Investimento's ROCE Trend?

Alupar Investimento is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. 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 157%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Alupar Investimento's ROCE

All in all, it's terrific to see that Alupar Investimento is reaping the rewards from prior investments and is growing its capital base. And a remarkable 156% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with Alupar Investimento (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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