What Can The Trends At Supercomnet Technologies Berhad (KLSE:SCOMNET) Tell Us About Their Returns?

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Supercomnet Technologies Berhad (KLSE:SCOMNET) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Supercomnet Technologies Berhad is:

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

0.14 = RM33m ÷ (RM251m - RM18m) (Based on the trailing twelve months to September 2020).

Therefore, Supercomnet Technologies Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electrical industry average of 5.8% it's much better.

See our latest analysis for Supercomnet Technologies Berhad

Above you can see how the current ROCE for Supercomnet Technologies Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Supercomnet Technologies Berhad here for free.

What Does the ROCE Trend For Supercomnet Technologies Berhad Tell Us?

The trends we've noticed at Supercomnet Technologies Berhad are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 483%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

In summary, it's great to see that Supercomnet Technologies Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Supercomnet Technologies Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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