There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Dufu Technology Berhad (KLSE:DUFU) looks attractive right now, so lets see what the trend of returns can tell us.
Understanding 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. The formula for this calculation on Dufu Technology Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = RM82m ÷ (RM415m - RM43m) (Based on the trailing twelve months to September 2024).
Thus, Dufu Technology Berhad has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.
Check out our latest analysis for Dufu Technology Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Dufu Technology Berhad's ROCE against it's prior returns. If you're interested in investigating Dufu Technology Berhad's past further, check out this free graph covering Dufu Technology Berhad's past earnings, revenue and cash flow.
So How Is Dufu Technology Berhad's ROCE Trending?
In terms of Dufu Technology Berhad's history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 76% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.
Our Take On Dufu Technology Berhad's ROCE
In short, we'd argue Dufu Technology Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And given the stock has only risen 22% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Dufu Technology Berhad is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
If you'd like to know more about Dufu Technology Berhad, we've spotted 2 warning signs, and 1 of them can't be ignored.