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. 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 Artroniq Berhad (KLSE:ARTRONIQ) so let's look a bit deeper.
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. To calculate this metric for Artroniq Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = RM1.8m ÷ (RM61m - RM12m) (Based on the trailing twelve months to June 2022).
Therefore, Artroniq Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.3%.
See our latest analysis for Artroniq Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Artroniq Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Artroniq Berhad, check out these free graphs here.
What Does the ROCE Trend For Artroniq Berhad Tell Us?
The fact that Artroniq Berhad is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Artroniq Berhad is utilizing 46% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In Conclusion...
Overall, Artroniq Berhad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 131% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know about the risks facing Artroniq Berhad, we've discovered 3 warning signs that you should be aware of.