The Returns At Ampla Energia e Serviços (BVMF:CBEE3) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Ampla Energia e Serviços (BVMF:CBEE3) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Ampla Energia e Serviços:

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

0.084 = R$1.1b ÷ (R$20b - R$6.5b) (Based on the trailing twelve months to December 2024).

Therefore, Ampla Energia e Serviços has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 12%.

View our latest analysis for Ampla Energia e Serviços

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ampla Energia e Serviços' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ampla Energia e Serviços.

What Can We Tell From Ampla Energia e Serviços' ROCE Trend?

The returns on capital haven't changed much for Ampla Energia e Serviços in recent years. The company has consistently earned 8.4% for the last five years, and the capital employed within the business has risen 88% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

As we've seen above, Ampla Energia e Serviços' returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 39% over the last five years, 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Ampla Energia e Serviços (of which 3 make us uncomfortable!) that you should know about.

While Ampla Energia e Serviços 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.