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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at QL Resources Berhad (KLSE:QL) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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 QL Resources Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.19 = RM703m ÷ (RM5.6b - RM1.9b) (Based on the trailing twelve months to June 2024).

Thus, QL Resources Berhad has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Food industry.

View our latest analysis for QL Resources Berhad

In the above chart we have measured QL Resources Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for QL Resources Berhad .

So How Is QL Resources Berhad's ROCE Trending?

Investors would be pleased with what's happening at QL Resources Berhad. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 33%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On QL Resources Berhad's ROCE

In summary, it's great to see that QL Resources Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 55% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

While QL Resources Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic for QL helps visualize whether it is currently trading for a fair price.