In This Article:
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Although, when we looked at Thai Beverage (SGX:Y92), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Thai Beverage:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.088 = ฿37b ÷ (฿496b - ฿74b) (Based on the trailing twelve months to March 2024).
Therefore, Thai Beverage has an ROCE of 8.8%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 12%.
See our latest analysis for Thai Beverage
Above you can see how the current ROCE for Thai Beverage compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Thai Beverage .
What The Trend Of ROCE Can Tell Us
There hasn't been much to report for Thai Beverage's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Thai Beverage in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Thai Beverage is paying out 54% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
What We Can Learn From Thai Beverage's ROCE
In summary, Thai Beverage isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 34% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.