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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Ekovest Berhad (KLSE:EKOVEST) and its ROCE trend, we weren't exactly thrilled.
We've discovered 2 warning signs about Ekovest Berhad. View them for free.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Ekovest Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.034 = RM317m ÷ (RM11b - RM1.7b) (Based on the trailing twelve months to December 2024).
Therefore, Ekovest Berhad has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 8.2%.
See our latest analysis for Ekovest Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Ekovest Berhad.
What Does the ROCE Trend For Ekovest Berhad Tell Us?
Over the past five years, Ekovest Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Ekovest Berhad to be a multi-bagger going forward.
The Bottom Line
In summary, Ekovest Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 28% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Ekovest Berhad has the makings of a multi-bagger.
Like most companies, Ekovest Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.
While Ekovest Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.