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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Nova Wellness Group Berhad (KLSE:NOVA) and its ROCE trend, we weren't exactly thrilled.
What Is 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. To calculate this metric for Nova Wellness Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = RM8.9m ÷ (RM120m - RM4.2m) (Based on the trailing twelve months to September 2024).
Thus, Nova Wellness Group Berhad has an ROCE of 7.7%. On its own, that's a low figure but it's around the 9.5% average generated by the Personal Products industry.
View our latest analysis for Nova Wellness Group Berhad
Above you can see how the current ROCE for Nova Wellness Group Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Nova Wellness Group Berhad .
The Trend Of ROCE
On the surface, the trend of ROCE at Nova Wellness Group Berhad doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.7% from 17% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On Nova Wellness Group Berhad's ROCE
To conclude, we've found that Nova Wellness Group Berhad is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.