If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So on that note, Keck Seng (Malaysia) Berhad (KLSE:KSENG) looks quite promising in regards to its trends of return on capital.
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Keck Seng (Malaysia) Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.048 = RM142m ÷ (RM3.2b - RM222m) (Based on the trailing twelve months to June 2024).
Thus, Keck Seng (Malaysia) Berhad has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.9%.
Check out our latest analysis for Keck Seng (Malaysia) Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Keck Seng (Malaysia) Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Keck Seng (Malaysia) Berhad.
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 26% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
To sum it up, Keck Seng (Malaysia) Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 35% 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.
Keck Seng (Malaysia) Berhad does have some risks though, and we've spotted 1 warning sign for Keck Seng (Malaysia) Berhad that you might be interested in.
While Keck Seng (Malaysia) Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.