Paragon Globe Berhad (KLSE:PGLOBE) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Speaking of which, we noticed some great changes in Paragon Globe Berhad's (KLSE:PGLOBE) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Paragon Globe Berhad is:

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

0.0031 = RM938k ÷ (RM312m - RM11m) (Based on the trailing twelve months to December 2021).

Therefore, Paragon Globe Berhad has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 5.6%.

See our latest analysis for Paragon Globe Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Paragon Globe Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Paragon Globe Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Paragon Globe Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.3% on its capital. And unsurprisingly, like most companies trying to break into the black, Paragon Globe Berhad is utilizing 25% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Paragon Globe Berhad's ROCE

In summary, it's great to see that Paragon Globe Berhad has managed to break into profitability and is continuing to reinvest in its business. Astute investors may have an opportunity here because the stock has declined 56% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Paragon Globe Berhad we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.