To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Kluang Rubber Company (Malaya) Berhad (KLSE:KLUANG), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Kluang Rubber Company (Malaya) Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0098 = RM13m ÷ (RM1.3b - RM7.7m) (Based on the trailing twelve months to June 2023).
So, Kluang Rubber Company (Malaya) Berhad has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.
View our latest analysis for Kluang Rubber Company (Malaya) 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'd like to look at how Kluang Rubber Company (Malaya) Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Kluang Rubber Company (Malaya) Berhad Tell Us?
There hasn't been much to report for Kluang Rubber Company (Malaya) Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Kluang Rubber Company (Malaya) Berhad to be a multi-bagger going forward.
The Bottom Line On Kluang Rubber Company (Malaya) Berhad's ROCE
In a nutshell, Kluang Rubber Company (Malaya) Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 3.8% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.