Will Turbo-Mech Berhad (KLSE:TURBO) Multiply In Value Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Turbo-Mech Berhad (KLSE:TURBO) and its ROCE trend, we weren't exactly thrilled.

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

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 Turbo-Mech Berhad is:

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

0.047 = RM5.3m ÷ (RM124m - RM9.4m) (Based on the trailing twelve months to December 2020).

So, Turbo-Mech Berhad has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 6.2%.

View our latest analysis for Turbo-Mech Berhad

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

The Trend Of ROCE

Over the past five years, Turbo-Mech Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Turbo-Mech Berhad to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to Turbo-Mech Berhad's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Turbo-Mech Berhad has the makings of a multi-bagger.

If you want to continue researching Turbo-Mech Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Turbo-Mech 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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