If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ergo, when we looked at the ROCE trends at Frontken Corporation Berhad (KLSE:FRONTKN), we liked what we saw.
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. Analysts use this formula to calculate it for Frontken Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = RM179m ÷ (RM880m - RM164m) (Based on the trailing twelve months to September 2024).
Thus, Frontken Corporation Berhad has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 8.0% earned by companies in a similar industry.
Check out our latest analysis for Frontken Corporation Berhad
Above you can see how the current ROCE for Frontken Corporation 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 Frontken Corporation Berhad .
So How Is Frontken Corporation Berhad's ROCE Trending?
We'd be pretty happy with returns on capital like Frontken Corporation Berhad. Over the past five years, ROCE has remained relatively flat at around 25% and the business has deployed 83% more capital into its operations. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
Our Take On Frontken Corporation Berhad's ROCE
Frontken Corporation Berhad has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 169% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for FRONTKN that compares the share price and estimated value.