Here's What To Make Of Unimech Group Berhad's (KLSE:UNIMECH) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating Unimech Group Berhad (KLSE:UNIMECH), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Unimech Group Berhad, this is the formula:

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

0.12 = RM41m ÷ (RM471m - RM137m) (Based on the trailing twelve months to September 2020).

So, Unimech Group Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 10% it's much better.

See our latest analysis for Unimech Group Berhad

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

What Can We Tell From Unimech Group Berhad's ROCE Trend?

Over the past five years, Unimech Group 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. So unless we see a substantial change at Unimech Group Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Bottom Line

We can conclude that in regards to Unimech Group Berhad's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 26% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

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

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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This article by Simply Wall St is general in nature. 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.
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