There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Yenher Holdings Berhad (KLSE:YENHER), it didn't seem to tick all of these boxes.
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. Analysts use this formula to calculate it for Yenher Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM27m ÷ (RM269m - RM28m) (Based on the trailing twelve months to December 2023).
Thus, Yenher Holdings Berhad has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.5% it's much better.
View our latest analysis for Yenher Holdings Berhad
Above you can see how the current ROCE for Yenher Holdings 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 Yenher Holdings Berhad .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Yenher Holdings Berhad doesn't inspire confidence. Over the last five years, returns on capital have decreased to 11% from 30% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by Yenher Holdings Berhad's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 11% over the last year, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
One more thing, we've spotted 2 warning signs facing Yenher Holdings Berhad that you might find interesting.