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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at JAG Berhad (KLSE:JAG) and its trend of ROCE, we really 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. To calculate this metric for JAG Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = RM12m ÷ (RM309m - RM51m) (Based on the trailing twelve months to December 2024).
So, JAG Berhad has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 6.2%.
View our latest analysis for JAG Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of JAG Berhad.
What The Trend Of ROCE Can Tell Us
We're delighted to see that JAG Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.5% on its capital. In addition to that, JAG Berhad is employing 46% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line
In summary, it's great to see that JAG Berhad has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 91% return over the last five years. In light of that, we think it's worth looking further into this stock because if JAG Berhad can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for JAG Berhad that we think you should be aware of.