Ahmad Zaki Resources Berhad (KLSE:AZRB) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Ahmad Zaki Resources Berhad's (KLSE:AZRB) returns on capital, so let's have 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 Ahmad Zaki Resources Berhad, this is the formula:

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

0.032 = RM95m ÷ (RM4.5b - RM1.5b) (Based on the trailing twelve months to March 2024).

Therefore, Ahmad Zaki Resources Berhad has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 7.7%.

Check out our latest analysis for Ahmad Zaki Resources Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Ahmad Zaki Resources Berhad's past further, check out this free graph covering Ahmad Zaki Resources Berhad's past earnings, revenue and cash flow.

What Can We Tell From Ahmad Zaki Resources Berhad's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Ahmad Zaki Resources Berhad promising. 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 372% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

The Bottom Line

To bring it all together, Ahmad Zaki Resources Berhad has done well to increase the returns it's generating from its capital employed. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Ahmad Zaki Resources Berhad, we've spotted 4 warning signs, and 1 of them is concerning.

While Ahmad Zaki Resources 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com