There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Rex Industry Berhad (KLSE:REX) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
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. To calculate this metric for Rex Industry Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.076 = RM8.7m ÷ (RM162m - RM49m) (Based on the trailing twelve months to December 2024).
Thus, Rex Industry Berhad has an ROCE of 7.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.2%.
View our latest analysis for Rex Industry Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Rex Industry Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Rex Industry Berhad.
How Are Returns Trending?
We're delighted to see that Rex Industry Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 7.6% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Rex Industry Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
What We Can Learn From Rex Industry Berhad's ROCE
To sum it up, Rex Industry Berhad is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 45% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
One final note, you should learn about the 2 warning signs we've spotted with Rex Industry Berhad (including 1 which is concerning) .