If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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, the ROCE of Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY) looks attractive right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mr D.I.Y. Group (M) Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = RM828m ÷ (RM3.8b - RM635m) (Based on the trailing twelve months to December 2024).
Therefore, Mr D.I.Y. Group (M) Berhad has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 10%.
Check out our latest analysis for Mr D.I.Y. Group (M) Berhad
Above you can see how the current ROCE for Mr D.I.Y. Group (M) 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 Mr D.I.Y. Group (M) Berhad for free.
What Can We Tell From Mr D.I.Y. Group (M) Berhad's ROCE Trend?
In terms of Mr D.I.Y. Group (M) Berhad's history of ROCE, it's quite impressive. The company has employed 98% more capital in the last five years, and the returns on that capital have remained stable at 26%. Now considering ROCE is an attractive 26%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
Our Take On Mr D.I.Y. Group (M) Berhad's ROCE
In summary, we're delighted to see that Mr D.I.Y. Group (M) Berhad has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 35% over the last three years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.