Kumpulan H & L High-Tech Berhad (KLSE:HIGHTEC) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Kumpulan H & L High-Tech Berhad (KLSE:HIGHTEC) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Kumpulan H & L High-Tech Berhad, this is the formula:

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

0.025 = RM3.1m ÷ (RM127m - RM3.7m) (Based on the trailing twelve months to January 2021).

Therefore, Kumpulan H & L High-Tech Berhad has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.1%.

Check out our latest analysis for Kumpulan H & L High-Tech Berhad

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

What Can We Tell From Kumpulan H & L High-Tech Berhad's ROCE Trend?

In terms of Kumpulan H & L High-Tech Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 37% more capital in the last five years, and the returns on that capital have remained stable at 2.5%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Kumpulan H & L High-Tech Berhad's ROCE

Long story short, while Kumpulan H & L High-Tech Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 96% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 6 warning signs for Kumpulan H & L High-Tech Berhad (1 is concerning) you should be aware of.

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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