The Trends At HLT Global Berhad (KLSE:HLT) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at HLT Global Berhad (KLSE:HLT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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 HLT Global Berhad:

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

0.16 = RM18m ÷ (RM179m - RM63m) (Based on the trailing twelve months to September 2020).

So, HLT Global Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Machinery industry.

See our latest analysis for HLT Global Berhad

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're interested in investigating HLT Global Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From HLT Global Berhad's ROCE Trend?

When we looked at the ROCE trend at HLT Global Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 16% from 39% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that HLT Global Berhad is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 314% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you want to continue researching HLT Global Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While HLT Global Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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