There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Lion Industries Corporation Berhad (KLSE:LIONIND) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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 Lion Industries Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0022 = RM5.3m ÷ (RM3.5b - RM1.1b) (Based on the trailing twelve months to December 2021).
Thus, Lion Industries Corporation Berhad has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 13%.
See our latest analysis for Lion Industries Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Lion Industries Corporation Berhad's ROCE against it's prior returns. If you'd like to look at how Lion Industries Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
We're delighted to see that Lion Industries Corporation 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 0.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Lion Industries Corporation Berhad is utilizing 26% more capital than it was five years ago. 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.
Our Take On Lion Industries Corporation Berhad's ROCE
To the delight of most shareholders, Lion Industries Corporation Berhad has now broken into profitability. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.