We're Watching These Trends At Kumpulan H & L High-Tech Berhad (KLSE:HIGHTEC)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Although, when we looked at Kumpulan H & L High-Tech Berhad (KLSE:HIGHTEC), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Kumpulan H & L High-Tech Berhad:

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

0.02 = RM2.2m ÷ (RM121m - RM10m) (Based on the trailing twelve months to July 2020).

So, Kumpulan H & L High-Tech Berhad has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 10%.

View 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're interested in investigating Kumpulan H & L High-Tech Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

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

When we looked at the ROCE trend at Kumpulan H & L High-Tech Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 3.5% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Kumpulan H & L High-Tech Berhad's ROCE

We're a bit apprehensive about Kumpulan H & L High-Tech Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Despite the concerning underlying trends, the stock has actually gained 11% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about Kumpulan H & L High-Tech Berhad, we've spotted 4 warning signs, and 2 of them are a bit concerning.

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.

If you’re looking to trade Kumpulan H & L High-Tech Berhad, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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