If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Westports Holdings Berhad's (KLSE:WPRTS) ROCE trend, we were pretty happy with what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Westports Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = RM1.2b ÷ (RM7.8b - RM763m) (Based on the trailing twelve months to December 2024).
Thus, Westports Holdings Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Infrastructure industry.
View our latest analysis for Westports Holdings Berhad
In the above chart we have measured Westports Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Westports Holdings Berhad .
What Does the ROCE Trend For Westports Holdings Berhad Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 17%. 17% is a pretty standard return, and it provides some comfort knowing that Westports Holdings 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.
In Conclusion...
To sum it up, Westports Holdings Berhad has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 70% 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.
One more thing to note, we've identified 1 warning sign with Westports Holdings Berhad and understanding it should be part of your investment process.