HLT Global Berhad (KLSE:HLT) Could Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at HLT Global Berhad's (KLSE:HLT) look very promising so lets take a look.

What is Return On Capital Employed (ROCE)?

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 HLT Global Berhad, this is the formula:

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

0.21 = RM34m ÷ (RM225m - RM61m) (Based on the trailing twelve months to December 2021).

So, HLT Global Berhad has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Machinery industry average of 12%.

Check out our latest analysis for HLT Global Berhad

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

What Does the ROCE Trend For HLT Global Berhad Tell Us?

The trends we've noticed at HLT Global Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 345%. So we're very much inspired by what we're seeing at HLT Global Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, HLT Global Berhad has decreased current liabilities to 27% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On HLT Global Berhad's ROCE

To sum it up, HLT Global Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 12% to shareholders. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 5 warning signs we've spotted with HLT Global Berhad (including 1 which is a bit concerning) .

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.