Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So, when we ran our eye over P.I.E. Industrial Berhad's (KLSE:PIE) trend of ROCE, we liked what we saw.
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. The formula for this calculation on P.I.E. Industrial Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM76m ÷ (RM846m - RM194m) (Based on the trailing twelve months to September 2024).
Therefore, P.I.E. Industrial Berhad has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electrical industry average of 11%.
See our latest analysis for P.I.E. Industrial Berhad
Above you can see how the current ROCE for P.I.E. Industrial Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering P.I.E. Industrial Berhad for free.
How Are Returns Trending?
While the returns on capital are good, they haven't moved much. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
In Conclusion...
The main thing to remember is that P.I.E. Industrial Berhad has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 368% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you're still interested in P.I.E. Industrial Berhad it's worth checking out our FREE intrinsic value approximation for PIE to see if it's trading at an attractive price in other respects.