To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, CSC Steel Holdings Berhad (KLSE:CSCSTEL) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for CSC Steel Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = RM53m ÷ (RM978m - RM63m) (Based on the trailing twelve months to December 2023).
Thus, CSC Steel Holdings Berhad has an ROCE of 5.8%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.
View our latest analysis for CSC Steel Holdings Berhad
Above you can see how the current ROCE for CSC Steel Holdings 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 CSC Steel Holdings Berhad .
What Does the ROCE Trend For CSC Steel Holdings Berhad Tell Us?
Shareholders will be relieved that CSC Steel Holdings Berhad has broken into profitability. The company now earns 5.8% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
The Bottom Line On CSC Steel Holdings Berhad's ROCE
As discussed above, CSC Steel Holdings Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 69% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if CSC Steel Holdings Berhad can keep these trends up, it could have a bright future ahead.