Kerjaya Prospek Group Berhad (KLSE:KERJAYA) Has More To Do To Multiply In Value Going Forward

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Kerjaya Prospek Group Berhad (KLSE:KERJAYA), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kerjaya Prospek Group Berhad:

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

0.15 = RM179m ÷ (RM1.7b - RM466m) (Based on the trailing twelve months to March 2024).

Thus, Kerjaya Prospek Group Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Construction industry.

Check out our latest analysis for Kerjaya Prospek Group Berhad

Above you can see how the current ROCE for Kerjaya Prospek Group Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Kerjaya Prospek Group Berhad .

So How Is Kerjaya Prospek Group Berhad's ROCE Trending?

Things have been pretty stable at Kerjaya Prospek Group Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Kerjaya Prospek Group Berhad to be a multi-bagger going forward. This probably explains why Kerjaya Prospek Group Berhad is paying out 59% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Kerjaya Prospek Group Berhad's ROCE

In a nutshell, Kerjaya Prospek Group Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 87% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to continue researching Kerjaya Prospek Group Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Kerjaya Prospek Group 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. 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.

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