We're Watching These Trends At Bina Puri Holdings Bhd (KLSE:BPURI)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Bina Puri Holdings Bhd (KLSE:BPURI), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Bina Puri Holdings Bhd:

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

0.033 = RM19m ÷ (RM1.3b - RM692m) (Based on the trailing twelve months to September 2020).

Thus, Bina Puri Holdings Bhd has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.2%.

See our latest analysis for Bina Puri Holdings Bhd

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 want to delve into the historical earnings, revenue and cash flow of Bina Puri Holdings Bhd, check out these free graphs here.

So How Is Bina Puri Holdings Bhd's ROCE Trending?

Things have been pretty stable at Bina Puri Holdings Bhd, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Bina Puri Holdings Bhd doesn't end up being a multi-bagger in a few years time.

On a side note, Bina Puri Holdings Bhd's current liabilities are still rather high at 54% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Bina Puri Holdings Bhd's ROCE

In summary, Bina Puri Holdings Bhd isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 75% over the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Bina Puri Holdings Bhd does come with some risks though, we found 5 warning signs in our investment analysis, and 3 of those can't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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