UMS-Neiken Group Berhad (KLSE:UMSNGB) Hasn't Managed To Accelerate Its Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at UMS-Neiken Group Berhad (KLSE:UMSNGB) 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. Analysts use this formula to calculate it for UMS-Neiken Group Berhad:

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

0.05 = RM6.0m ÷ (RM125m - RM5.4m) (Based on the trailing twelve months to June 2024).

Therefore, UMS-Neiken Group Berhad has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 12%.

See our latest analysis for UMS-Neiken Group Berhad

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

What Does the ROCE Trend For UMS-Neiken Group Berhad Tell Us?

Over the past five years, UMS-Neiken Group Berhad's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if UMS-Neiken Group Berhad doesn't end up being a multi-bagger in a few years time.

The Key Takeaway

In summary, UMS-Neiken Group Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 54% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

UMS-Neiken Group Berhad does have some risks though, and we've spotted 2 warning signs for UMS-Neiken Group Berhad that you might be interested in.

While UMS-Neiken Group 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.