Wong Engineering Corporation Berhad (KLSE:WONG) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Wong Engineering Corporation Berhad (KLSE:WONG) so let's look a bit deeper.

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. To calculate this metric for Wong Engineering Corporation Berhad, this is the formula:

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

0.15 = RM14m ÷ (RM106m - RM15m) (Based on the trailing twelve months to October 2021).

Thus, Wong Engineering Corporation Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Machinery industry.

View our latest analysis for Wong Engineering Corporation Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wong Engineering Corporation Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Wong Engineering Corporation Berhad, check out these free graphs here.

The Trend Of ROCE

We're delighted to see that Wong Engineering Corporation Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 15% on its capital. Not only that, but the company is utilizing 59% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

In summary, it's great to see that Wong Engineering Corporation Berhad has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 209% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Wong Engineering Corporation Berhad that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.