To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Iconic Worldwide Berhad's (KLSE:ICONIC) returns on capital, so let's have a 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. Analysts use this formula to calculate it for Iconic Worldwide Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.046 = RM14m ÷ (RM347m - RM52m) (Based on the trailing twelve months to June 2022).
Thus, Iconic Worldwide Berhad has an ROCE of 4.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.
Check out our latest analysis for Iconic Worldwide Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Iconic Worldwide Berhad's ROCE against it's prior returns. If you'd like to look at how Iconic Worldwide Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Iconic Worldwide Berhad's ROCE Trend?
The fact that Iconic Worldwide Berhad is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 4.6% on its capital. In addition to that, Iconic Worldwide Berhad is employing 222% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
Our Take On Iconic Worldwide Berhad's ROCE
To the delight of most shareholders, Iconic Worldwide Berhad has now broken into profitability. And since the stock has fallen 47% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing: We've identified 5 warning signs with Iconic Worldwide Berhad (at least 1 which is significant) , and understanding them would certainly be useful.