If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Dominant Enterprise Berhad (KLSE:DOMINAN), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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 Dominant Enterprise Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.079 = RM32m ÷ (RM666m - RM256m) (Based on the trailing twelve months to June 2024).
Thus, Dominant Enterprise Berhad has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 2.5% generated by the Forestry industry, it's much better.
See our latest analysis for Dominant Enterprise Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Dominant Enterprise Berhad's ROCE against it's prior returns. If you're interested in investigating Dominant Enterprise Berhad's past further, check out this free graph covering Dominant Enterprise Berhad's past earnings, revenue and cash flow.
What Does the ROCE Trend For Dominant Enterprise Berhad Tell Us?
In terms of Dominant Enterprise Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
Our Take On Dominant Enterprise Berhad's ROCE
To conclude, we've found that Dominant Enterprise Berhad is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.