Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 PPB Group Berhad (KLSE:PPB) 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)
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. The formula for this calculation on PPB Group Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = RM319m ÷ (RM29b - RM965m) (Based on the trailing twelve months to December 2024).
Thus, PPB Group Berhad has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.7%.
Check out our latest analysis for PPB Group Berhad
Above you can see how the current ROCE for PPB Group 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 analyst report for PPB Group Berhad .
What Does the ROCE Trend For PPB Group Berhad Tell Us?
In terms of PPB Group Berhad's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 1.1% and the business has deployed 24% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
The Bottom Line
Long story short, while PPB Group Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 20% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think PPB Group Berhad has the makings of a multi-bagger.
If you want to continue researching PPB Group Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.