To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Supercomnet Technologies Berhad (KLSE:SCOMNET) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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 Supercomnet Technologies Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.075 = RM29m ÷ (RM411m - RM17m) (Based on the trailing twelve months to March 2024).

Therefore, Supercomnet Technologies Berhad has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 10%.

View our latest analysis for Supercomnet Technologies Berhad

In the above chart we have measured Supercomnet Technologies Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Supercomnet Technologies Berhad .

What Does the ROCE Trend For Supercomnet Technologies Berhad Tell Us?

In terms of Supercomnet Technologies Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.5% from 12% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Supercomnet Technologies Berhad's ROCE

We're a bit apprehensive about Supercomnet Technologies Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 82% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.