To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Mudajaya Group Berhad (KLSE:MUDAJYA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Mudajaya Group Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM133m ÷ (RM2.0b - RM775m) (Based on the trailing twelve months to December 2024).
So, Mudajaya Group Berhad has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Construction industry average of 10%.
Check out our latest analysis for Mudajaya Group Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Mudajaya Group Berhad's ROCE against it's prior returns. If you're interested in investigating Mudajaya Group Berhad's past further, check out this free graph covering Mudajaya Group Berhad's past earnings, revenue and cash flow.
So How Is Mudajaya Group Berhad's ROCE Trending?
We weren't thrilled with the trend because Mudajaya Group Berhad's ROCE has reduced by 74% over the last five years, while the business employed 78% more capital. Usually this isn't ideal, but given Mudajaya Group Berhad conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Mudajaya Group Berhad's earnings and if they change as a result from the capital raise.
The Key Takeaway
From the above analysis, we find it rather worrisome that returns on capital and sales for Mudajaya Group Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 68% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.