There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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, the ROCE of P.I.E. Industrial Berhad (KLSE:PIE) looks decent, right now, so lets see what the trend of returns can tell us.
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 P.I.E. Industrial Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = RM82m ÷ (RM865m - RM325m) (Based on the trailing twelve months to September 2022).
So, P.I.E. Industrial Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.8% generated by the Electrical industry.
View our latest analysis for P.I.E. Industrial Berhad
Above you can see how the current ROCE for P.I.E. Industrial Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering P.I.E. Industrial Berhad here for free.
What Can We Tell From P.I.E. Industrial Berhad's ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 41% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that P.I.E. Industrial Berhad has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On P.I.E. Industrial Berhad's ROCE
The main thing to remember is that P.I.E. Industrial Berhad has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 54% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
Like most companies, P.I.E. Industrial Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.