In This Article:
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Genting Malaysia Berhad (KLSE:GENM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding 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 Genting Malaysia Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = RM1.2b ÷ (RM30b - RM3.5b) (Based on the trailing twelve months to June 2023).
So, Genting Malaysia Berhad has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 6.5%.
Check out our latest analysis for Genting Malaysia Berhad
Above you can see how the current ROCE for Genting Malaysia Berhad 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 report on analyst forecasts for the company.
So How Is Genting Malaysia Berhad's ROCE Trending?
Things have been pretty stable at Genting Malaysia Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Genting Malaysia Berhad doesn't end up being a multi-bagger in a few years time. That probably explains why Genting Malaysia Berhad has been paying out 87% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
What We Can Learn From Genting Malaysia Berhad's ROCE
We can conclude that in regards to Genting Malaysia Berhad's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 27% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.