Investors Met With Slowing Returns on Capital At P.I.E. Industrial Berhad (KLSE:PIE)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think P.I.E. Industrial Berhad (KLSE:PIE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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. The formula for this calculation on P.I.E. Industrial Berhad is:

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

0.09 = RM60m ÷ (RM855m - RM191m) (Based on the trailing twelve months to December 2024).

So, P.I.E. Industrial Berhad has an ROCE of 9.0%. On its own, that's a low figure but it's around the 10% average generated by the Electrical industry.

See our latest analysis for P.I.E. Industrial Berhad

Above you can see how the current ROCE for P.I.E. Industrial Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for P.I.E. Industrial Berhad .

What Does the ROCE Trend For P.I.E. Industrial Berhad Tell Us?

In terms of P.I.E. Industrial Berhad's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 9.0% and the business has deployed 45% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, P.I.E. Industrial Berhad has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 268% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

P.I.E. Industrial Berhad could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for PIE on our platform quite valuable.

While P.I.E. Industrial Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.