To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at D & O Green Technologies Berhad (KLSE:D&O) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for D & O Green Technologies Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM150m ÷ (RM1.8b - RM632m) (Based on the trailing twelve months to September 2024).
Thus, D & O Green Technologies Berhad has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 7.1% it's much better.
Check out our latest analysis for D & O Green Technologies Berhad
Above you can see how the current ROCE for D & O Green Technologies Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for D & O Green Technologies Berhad .
What The Trend Of ROCE Can Tell Us
In terms of D & O Green Technologies Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 20% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
What We Can Learn From D & O Green Technologies Berhad's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that D & O Green Technologies Berhad is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 112% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.