Hong Leong Industries Berhad (KLSE:HLIND) Is Reinvesting To Multiply In Value

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Hong Leong Industries Berhad's (KLSE:HLIND) trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Hong Leong Industries Berhad, this is the formula:

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

0.22 = RM523m ÷ (RM2.9b - RM571m) (Based on the trailing twelve months to March 2024).

So, Hong Leong Industries Berhad has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Industrials industry average of 6.8%.

View our latest analysis for Hong Leong Industries Berhad

Above you can see how the current ROCE for Hong Leong Industries Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Hong Leong Industries Berhad .

So How Is Hong Leong Industries Berhad's ROCE Trending?

It's hard not to be impressed by Hong Leong Industries Berhad's returns on capital. Over the past five years, ROCE has remained relatively flat at around 22% and the business has deployed 27% more capital into its operations. Now considering ROCE is an attractive 22%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Hong Leong Industries Berhad can keep this up, we'd be very optimistic about its future.

The Bottom Line

In summary, we're delighted to see that Hong Leong Industries Berhad has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Hong Leong Industries Berhad (of which 1 can't be ignored!) that you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.