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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Thai Beverage (SGX:Y92) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Thai Beverage, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = ฿44b ÷ (฿528b - ฿109b) (Based on the trailing twelve months to September 2024).
Therefore, Thai Beverage has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Beverage industry.
View our latest analysis for Thai Beverage
Above you can see how the current ROCE for Thai Beverage compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Thai Beverage .
What Does the ROCE Trend For Thai Beverage Tell Us?
There hasn't been much to report for Thai Beverage's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Thai Beverage in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Thai Beverage is paying out 55% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Key Takeaway
In summary, Thai Beverage isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 21% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Thai Beverage has the makings of a multi-bagger.