Why We Like The Returns At Sarawak Plantation Berhad (KLSE:SWKPLNT)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. And in light of that, the trends we're seeing at Sarawak Plantation Berhad's (KLSE:SWKPLNT) look very promising so lets take a look.
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 Sarawak Plantation Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
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0.23 = RM195m ÷ (RM963m - RM121m) (Based on the trailing twelve months to June 2022).
Therefore, Sarawak Plantation Berhad has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
See our latest analysis for Sarawak Plantation Berhad
In the above chart we have measured Sarawak Plantation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sarawak Plantation Berhad here for free.
The Trend Of ROCE
Sarawak Plantation Berhad is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 299% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
What We Can Learn From Sarawak Plantation Berhad's ROCE
To sum it up, Sarawak Plantation Berhad is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 65% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Sarawak Plantation Berhad does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.