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

There are a few key trends to look for if we want to identify the next multi-bagger. 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, Ahmad Zaki Resources Berhad (KLSE:AZRB) looks quite promising in regards to its trends of return on capital.

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Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Ahmad Zaki Resources Berhad:

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

0.097 = RM304m ÷ (RM4.4b - RM1.3b) (Based on the trailing twelve months to December 2024).

Therefore, Ahmad Zaki Resources Berhad has an ROCE of 9.7%. On its own, that's a low figure but it's around the 9.4% average generated by the Construction industry.

View our latest analysis for Ahmad Zaki Resources Berhad

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

How Are Returns Trending?

Shareholders will be relieved that Ahmad Zaki Resources Berhad has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.7% on its capital. While returns have increased, the amount of capital employed by Ahmad Zaki Resources Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, Ahmad Zaki Resources Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Ahmad Zaki Resources Berhad we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Ahmad Zaki Resources 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.

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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.