To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 looked at United U-LI Corporation Berhad (KLSE:ULICORP) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for United U-LI Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM45m ÷ (RM396m - RM38m) (Based on the trailing twelve months to March 2023).
So, United U-LI Corporation Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 8.4% it's much better.
Check out our latest analysis for United U-LI Corporation Berhad
Above you can see how the current ROCE for United U-LI Corporation 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 United U-LI Corporation Berhad here for free.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from United U-LI Corporation Berhad. The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 21% more capital is being employed now too. 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.
The Key Takeaway
To sum it up, United U-LI Corporation Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 37% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing, we've spotted 3 warning signs facing United U-LI Corporation Berhad that you might find interesting.