P.I.E. Industrial Berhad (KLSE:PIE) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at P.I.E. Industrial Berhad (KLSE:PIE) 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)

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. To calculate this metric for P.I.E. Industrial Berhad, this is the formula:

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

0.14 = RM71m ÷ (RM699m - RM204m) (Based on the trailing twelve months to March 2021).

Thus, P.I.E. Industrial Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 10.0% it's much better.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is P.I.E. Industrial Berhad's ROCE Trending?

On the surface, the trend of ROCE at P.I.E. Industrial Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 19% over the last five years. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From P.I.E. Industrial Berhad's ROCE

While returns have fallen for P.I.E. Industrial Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 83% to shareholders over the last five years. 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'd like to know more about P.I.E. Industrial Berhad, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

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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