Neoenergia (BVMF:NEOE3) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Neoenergia (BVMF:NEOE3) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Neoenergia:

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

0.11 = R$10b ÷ (R$111b - R$18b) (Based on the trailing twelve months to June 2025).

So, Neoenergia has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Electric Utilities industry.

View our latest analysis for Neoenergia

Above you can see how the current ROCE for Neoenergia 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 analyst report for Neoenergia .

So How Is Neoenergia's ROCE Trending?

Investors would be pleased with what's happening at Neoenergia. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 92% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Neoenergia's ROCE

To sum it up, Neoenergia has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 99% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Neoenergia can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Neoenergia and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.