If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at Resintech Berhad (KLSE:RESINTC) so let's look a bit deeper.
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. The formula for this calculation on Resintech Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.033 = RM7.2m ÷ (RM258m - RM36m) (Based on the trailing twelve months to December 2023).
So, Resintech Berhad has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Machinery industry average of 10.0%.
Check out our latest analysis for Resintech Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Resintech Berhad's ROCE against it's prior returns. If you're interested in investigating Resintech Berhad's past further, check out this free graph covering Resintech Berhad's past earnings, revenue and cash flow.
What Does the ROCE Trend For Resintech Berhad Tell Us?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 3.3%. The amount of capital employed has increased too, by 47%. 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.
What We Can Learn From Resintech Berhad's ROCE
All in all, it's terrific to see that Resintech Berhad is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Resintech Berhad can keep these trends up, it could have a bright future ahead.
On a final note, we found 3 warning signs for Resintech Berhad (1 shouldn't be ignored) you should be aware of.