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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Catcha Digital Berhad (KLSE:CATCHA) so let's look a bit deeper.

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. The formula for this calculation on Catcha Digital Berhad is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.044 = RM2.5m ÷ (RM65m - RM8.9m) (Based on the trailing twelve months to September 2023).

So, Catcha Digital Berhad has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 14%.

Check out our latest analysis for Catcha Digital Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Catcha Digital Berhad's ROCE against it's prior returns. If you'd like to look at how Catcha Digital Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Catcha Digital Berhad is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 4.4% which is a sight for sore eyes. In addition to that, Catcha Digital Berhad is employing 792% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that Catcha Digital Berhad's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a solid 73% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Catcha Digital Berhad does have some risks, we noticed 4 warning signs (and 1 which is concerning) we think you should know about.

While Catcha Digital Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.