Pesona Metro Holdings Berhad (KLSE:PESONA) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Pesona Metro Holdings Berhad (KLSE:PESONA), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on Pesona Metro Holdings Berhad is:

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

0.091 = RM27m ÷ (RM654m - RM353m) (Based on the trailing twelve months to December 2023).

Thus, Pesona Metro Holdings Berhad has an ROCE of 9.1%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 6.6%.

Check out our latest analysis for Pesona Metro Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pesona Metro Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Pesona Metro Holdings Berhad's past further, check out this free graph covering Pesona Metro Holdings Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For Pesona Metro Holdings Berhad Tell Us?

Things have been pretty stable at Pesona Metro Holdings Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Pesona Metro Holdings Berhad doesn't end up being a multi-bagger in a few years time.

On a separate but related note, it's important to know that Pesona Metro Holdings Berhad has a current liabilities to total assets ratio of 54%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In a nutshell, Pesona Metro Holdings Berhad has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Pesona Metro Holdings Berhad has the makings of a multi-bagger.

Pesona Metro Holdings Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are significant...

While Pesona Metro Holdings 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.